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 Federal  Communications  Commission  FCC  03-  330 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of 
 General  Motors  Corporation  and  Hughes  Electronics  Corporation,  Transferors 


 And 
 The  News  Corporation  Limited,  Transferee, 
 For  Authority  to  Transfer  Control 


 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 


 MB  Docket  No.  03-  124 


 MEMORANDUM  OPINION  AND  ORDER 
 Adopted:  December  19,  2003  Released:  January  14,  2004 
 By  the  Commission:  Chairman  Powell,  Commissioners  Abernathy  and  Martin  issuing  separate  statements;  Commissioners  Copps  and  Adelstein  dissenting  and  issuing  separate 
 statements. 
 TABLE  OF  CONTENTS 
 Para.  No.  I.  INTRODUCTION..................................................................................................................................  1 


 II.  DESCRIPTION  OF  THE  PARTIES  .....................................................................................................  6 
 A.  The  News  Corporation  Limited................................................................................................  6  B.  General  Motors  Corporation  and  Hughes  Electronics  Corporation  ........................................  8 
 C.  The  Proposed  Transaction  ........................................................................................................  9 
 III.  STANDARD  OF  REVIEW  AND  PUBLIC  INTEREST  FRAMEWORK........................................  15 
 IV.  COMPLIANCE  WITH  COMMUNICATIONS  ACT  AND  COMMISSION  RULES  AND  POLICIES...................................................................................................................................  18 


 A.  Licensing  Qualifications  .........................................................................................................  18  B.  Foreign  Ownership  .................................................................................................................  27 
 C.  National  Security,  Law  Enforcement,  Foreign  Policy  and  Trade  Policy  Concerns  ..............  35 
 V.  INTRODUCTION  TO  THE  VIDEO  PROGRMAMING  AND  MVPD  MARKETS  .......................  39 
 A.  Background.............................................................................................................................  39  B.  Applicable  Regulatory  Framework  ........................................................................................  41 
 1.  Program  Access  Requirements  .................................................................................  41  2.  Program  Carriage  Rules  ............................................................................................  45 
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 3.  Must-  Carry  and  Retransmission  Consent  .................................................................  46  C.  Relevant  Markets  ....................................................................................................................  49 
 1.  Product  Markets  ........................................................................................................  51  a.  MVPD  Services  ...........................................................................................  52 
 b.  Video  Programming  ...................................................................................  54  2.  Relevant  Geographic  Markets...................................................................................  62 
 a.  MVPD  Services  ...........................................................................................  62  b.  Video  Programming  ...................................................................................  63 


 VI.  ANALYSIS  OF  POTENTIAL  HARMS  IN  THE  RELEVANT  MARKETS....................................  68 
 A.  Introduction.............................................................................................................................  68  B.  Potential  Horizontal  Harms  ....................................................................................................  72 
 C.  Potential  Vertical  Harms.........................................................................................................  76  1.  Background  ...............................................................................................................  76 
 2.  Role  of  Corporate  Governance  .................................................................................  89  3.  Discrimination  Against  Unaffiliated  Programming  ...............................................  101 
 (i)  Positions  of  the  Parties.................................................................  101  (ii)  Discussion  and  Condition  ............................................................  107 
 4.  Discrimination  Against  Unaffiliated  MVPDs  ........................................................  109  a.  Access  to  National  and  Non-  Sports  Regional  Cable 
 Programming  Networks.............................................................................  109  (i)  Position  of  Parties  ........................................................................  109 
 (ii)  Discussion  and  Conditions  ..........................................................  124  b.  Access  to  Regional  Sports  Cable  Programming  Networks  ......................  133 
 (i)  Background  ..................................................................................  133  (ii)  Positions  of  the  Parties.................................................................  135 
 (iii)  Discussion  ....................................................................................  147  (iv)  Conditions  ....................................................................................  163 
 c.  Access  to  Broadcast  Television  Station  Signals  .......................................  180  (i)  Background  ..................................................................................  180 
 (ii)  Positions  of  the  Parties.................................................................  182  (iii)  Discussion  ....................................................................................  201 
 (iv)  Conditions  ....................................................................................  212  d.  Access  to  Programming-  Related  Technologies  ........................................  227 
 (i)  Electronic  Program  Guides/  Interactive  Program  Guides............  227  (ii)  Interactive  Television...................................................................  242 
 (iii)  Conditional  Access  Technology  and  Set-  top  Boxes.  ..................  247  e.  Access  to  Fixed  Satellite  Services.............................................................  251 


 VII.  OTHER  POTENTIAL  PUBLIC  INTEREST  HARMS....................................................................  259 
 A.  Impact  of  the  Transaction  on  Diversity  ................................................................................  259  1.  Background  .............................................................................................................  259 
 2.  Program  Diversity  ...................................................................................................  260  3.  Viewpoint  Diversity  ................................................................................................  262 
 B.  Effect  on  Network-  Affiliate  Relationships  (  Bypass  Issue)  ..............................................  274  C.  Collusion  with  Cable  MSOs  .................................................................................................  276 
 D.  Exclusive  Arrangements  with  Unaffiliated  Programmers  ...................................................  289 
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 E.  Applicants  Conduct  in  Foreign  Jurisdictions......................................................................  294  F.  Competitive  Harms  in  Latin  America  and  Impact  on  U.  S.  Consumers  and  Programmers  .  301 
 G.  DirecTV  and  Fox  Network  Service  in  Alaska  and  Hawaii..................................................  304  H.  Exclusion  of  Non-  Network  Affiliated  Broadcasters  from  the  Benefits  of  Local-  Into 
 Local  Carriage.......................................................................................................................  307  I.  Lack  of  Final  Media  Ownership  Rules.................................................................................  310 
 J.  Protection  of  General  Motors  Class  GMH  Stockholders.....................................................  313 
 VIII.  ANALYSIS  OF  POTENTIAL  PUBLIC  INTEREST  BENEFITS...................................................  315 
 A.  Analytical  Framework  ..........................................................................................................  316  B.  Claimed  Benefits...................................................................................................................  319 
 1.  Improvements  in  DirecTVs  Service  Offerings  Resulting  from  News  Corps  Innovative  Management..............................................................................  320 
 2.  Increased  Offering  of  Local-  into-  Local,  HDTV,  and  Broadband  Services  ...........  329  3.  Increased  Operating  Efficiencies  ............................................................................  335 
 4.  Economies  of  Scope  and  Scale  ...............................................................................  339  5.  Improved  Customer  Satisfaction  and  Reduced  Churn  ...........................................  345 
 6.  Improved  Capital  Structure  .....................................................................................  349  7.  Reduction  in  Double  Marginalization.....................................................................  351 
 8.  Increased  Program  and  Employment  Diversity......................................................  352 
 IX.  BALANCING  POTENTIAL  PUBLIC  INTEREST  HARMS  AND  BENEFITS............................  358 
 X.  CONCLUSION..................................................................................................................................  371 
 XI.  ORDERING  CLAUSES  ....................................................................................................................  372 
 APPENDICES  Appendix  A    List  of  Commenters 
 Appendix  B    Modifications  to  Rules  for  Arbitration  Involving  Regional  Sports  Networks  Appendix  C    Modifications  to  Rules  for  Arbitration  Involving  Retransmission  Consent 
 Appendix  D    Technical  Appendix  Appendix  E    Hughes  Electronics  Corporation    Amended  and  Restated  By-  Laws 
 Appendix  F    Conditions  Appendix  G    Licenses  and  Authorizations  to  Be  Transferred 
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 I.  INTRODUCTION 
 1.  In  this  Order,  we  consider  the  application  (  Application)  1  of  General  Motors  Corporation  (  GM),  Hughes  Electronics  Corporation  (  Hughes),  and  the  News  Corporation  Limited  (  News  Corp.) 


 (collectively,  the  Applicants)  for  consent  to  transfer  control  of  various  Commission  licenses  and  authorizations,  including  direct  broadcast  satellite  (  DBS)  2  and  fixed  satellite  space  station,  earth  station, 
 and  terrestrial  wireless  authorizations  held  by  Hughes  and  its  wholly-  or  majority-  owned  subsidiaries  to  News  Corp.  The  proposed  transaction  involves  the  split-  off  of  Hughes  from  GM,  wherein  Hughes  will 
 become  a  separate  and  independent  company,  followed  by  a  series  of  transactions  through  which  News  Corp.,  through  its  majority-  held  subsidiary,  Fox  Entertainment  Group  (  FEG),  will  acquire  a  34% 
 interest  in  Hughes.  The  remaining  66%  interest  in  Hughes  will  be  held  by  three  GM  employee  benefit  trusts  (managed  by  an  independent  trustee),  which  combined  will  hold  an  approximately  20%  interest  in 
 Hughes,  and  by  the  general  public,  which  will  hold  an  approximately  46%  interest  in  Hughes. 
 2.  If  approved,  the  proposed  transaction  will  result  in  News  Corp.  holding  the  single  largest  block  of  shares  in  Hughes,  thus  providing  News  Corp.  with  a  de  facto  controlling  interest  over  Hughes 


 and  its  subsidiaries,  including  DirecTV  Holdings,  LLC  (  DirecTV),  a  wholly-  owned  subsidiary  of  Hughes,  which  provides  DBS  service  in  the  United  States,  as  well  as  Hughes  Network  Systems,  Inc. 
 (  HNS),  a  facilities-  based  provider  of  very  small  aperture  terminal  (  VSAT)  network  systems,  and  PanAmSat  Corporation  (  PanAmSat),  a  global  facilities-  based  provider  of  geostationary-  satellite  orbit 
 fixed  satellite  services  (  FSS).  As  described  in  the  Application,  if  the  proposed  transaction  is  consummated,  K.  Rupert  Murdoch,  chairman  and  chief  executive  officer  (  CEO)  of  News  Corp.,  will 
 become  chairman  of  Hughes,  and  Chase  Carey,  News  Corp.  s  former  co-  chief  operating  officer,  will  become  president  and  chief  executive  officer  of  Hughes.  Hughes  board  of  directors  will  consist  of  11 
 directors,  six  of  whom  will  be  independent  directors. 
 3.  Among  News  Corp.  s  video  programming  assets  are  35  owned  and  operated  (  O&  O)  full-power  television  broadcast  stations,  a  television  broadcast  network,  ten  national  cable  programming 


 networks,  and  22  regional  cable  programming  networks.  With  11.4  million  subscribers    13%  of  all  multichannel  video  programming  distribution  (  MVPD)  households    DirecTV  is  second  only  to 
 Comcast  Corporation  in  its  share  of  the  MVPD  market.  With  its  national  footprint,  DirecTV  competes  with  every  single  MVPD  in  the  country,  in  markets  of  all  sizes. 


 4.  Currently,  News  Corp.  supplies  programming  to  DirecTV  and  other  MVPDs,  and  DirecTV  is  a  buyer  of  programming  content  from  News  Corp.  and  other  programming  suppliers.  By  combining 
 News  Corp.  s  programming  assets  with  DirecTVs  national  distribution  platform,  the  proposed  transaction  creates  a  vertically  integrated  content/  distribution  platform.  It  thereby  changes  the  nature  of 


 1  See  Consolidated  Application  of  General  Motors  Corporation  and  Hughes  Electronics  Corporation, 
 Transferors,  and  the  News  Corporation  Limited,  Transferee,  for  Authority  to  Transfer  Control,  May  2,  2003  (  May  2003  Filing).  The  term,  Application,  refers  to  the  May  2003  Filing  and  the  letter  from  William  M. 


 Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  30,  2003)  (clarification  of  Application).  The  Media  Bureau  placed  the  Application  on  public  notice  on  May  16,  2003,  DA  03-  1725,  MB 
 Docket  No.  03-  124,  establishing  a  comment  cycle  for  this  proceeding.  See  Appendix  A  for  a  list  of  parties  filing  in  this  proceeding  and  the  abbreviations  by  which  they  are  identified  herein. 


 2  DBS  is  the  acronym  used  in  the  United  States  to  describe  the  domestic  implementation  of  the  satellite  service 
 known  internationally  as  the  broadcasting  satellite  service  (  BSS).  See  47  C.  F.  R.    25.201. 
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 News  Corp.  s  relationship  with  all  other  MVPDs  from  that  of  solely  a  programming  supplier  to  that  of  both  a  supplier  of  crucial  inputs  and  a  direct  competitor  in  the  end  user  MVPD  market.  As  discussed 
 more  fully  below,  our  analysis  of  the  principal  allegations  of  competitive  harm  in  the  record  demonstrates  that  this  vertical  integration  has  the  potential  to  increase  the  incentive  and  ability  of  News  Corp.  to  engage 
 in  temporary  foreclosure  bargaining  strategies  during  carriage  negotiations  with  competing  MVPDs  for  two  types  of  must  have  video  programming  products    broadcast  television  station  signals  and  regional 
 cable  programming  sports  networks  --  in  order  to  secure  higher  prices  for  its  programming.  3  Although  News  Corp.,  like  other  broadcast  networks,  engages  or  attempts  to  engage  in  this  sort  of  behavior  today, 
 ownership  of  a  competing  MVPD  platform  with  a  national  footprint  means  that  News  Corp.  stands  to  gain  from  any  subscriber  losses  the  affected  MVPD  suffers  during  the  period  of  foreclosure  when  those 
 subscribers  move  over  to  its  competing  MVPD  platform  to  access  the  desired  programming.  4  The  ability  to  gain  revenues  via  its  ownership  interest  in  DirecTV  thereby  helps  offset  any  temporary  losses  that 
 News  Corp.  would  suffer  from  withdrawal  of  its  programming  from  the  competing  MPVD  in  terms  of  lost  advertising  and/  or  affiliate  fee  revenues.  This  off-  setting  revenue  gain  makes  use  of  the  strategy  more 
 tolerable  to  News  Corp  post-  transaction  than  it  was  pre-  transaction  and  thereby  increases  the  likelihood  and  frequency  of  its  use.  This  lowering  of  the  costs  of  foreclosure  to  News  Corp.  from  present  levels 
 fundamentally  and  substantially  alters  the  bargaining  dynamic  between  the  program  supplier  and  the  competing  programming  distributor  to  the  benefit  of  the  former  at  the  expense  of  the  latter  and  its 
 subscribers.  To  the  extent  that  News  Corp.  succeeds  in  using  temporary  foreclosure  strategies  to  extract  supra-  competitive  prices  for  its  programming,  these  transaction-  specific  higher  programming  costs  are 
 likely  to  be  passed  through  as  higher  MVPD  prices,  which  in  turn  would  harm  consumers. 
 5.  Applicants  have  alleged,  and  we  have  found,  various  public  interest  benefits  from  the  transaction,  including  more  potent  competition  to  cable,  increased  innovation  and  consumer  benefits  in 


 terms  of  programming  and  services,  and  increased  penetration  of  local-  into-  local  broadcasting  service.  Our  license  conditions  described  below  are  designed  to  lessen  the  impact  of  the  public  interest  harms 
 outlined  above,  while  preserving  the  benefits  of  the  transaction  for  the  public.  Based  on  the  record  before  us,  we  find  that  on  balance  and  as  conditioned,  the  subject  license  transfer  approvals  will  serve  the  public 
 interest.  We  therefore  grant  the  Application  with  the  conditions  specified  below. 


 3  In  this  Order,  [  REDACTED]  indicates  confidential  or  proprietary  information,  or  analysis  based  on  such 
 information,  submitted  pursuant  to  the  First  and/  or  Second  Protective  Orders.  See  News  Corporation,  General  Motors  Corporation,  and  Hughes  Electronics  Corporation,  Order  Adopting  Protective  Order,  DA  03-  1761  (rel. 


 May  22,  2003);  News  Corporation,  General  Motors  Corporation,  and  Hughes  Electronics  Corporation,  Order  Concerning  Second  Protective  Order,  DA  03-  2376  (rel.  July  22,  2003).  The  unredacted  version  of  this  Order  is 
 available  upon  request  only  to  those  parties  who  have  executed  and  filed  with  the  Commission  signed  acknowledgements  of  the  Second  Protective  Order.  Qualified  representatives  who  have  not  yet  signed  the 
 required  acknowledgement  may  do  so  in  order  to  obtain  the  unredacted  Order. 
 4  See,  e.  g.,  Most  Cable  MSOs  Get  Deals  Done  on  Retransmission  Consent,  WARRENS  CABLE  REGULATION 
 MONITOR,  Jan.  13,  2003:  Joanne  Ostrow,  Denver  ABC  Affiliate  Engages  in  Big  Dispute  with  AT&  T  Broadband,  THE  DENVER  POST,  Dec.  31,  2002;  Bruce  Orwall  and  Joe  Flint,  Disney,  Time  Warner  Sign  Deal,  Settling  Their 


 Nasty,  Public  Feud,  WALL  ST.  J.,  May  26,  2000. 
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 II.  DESCRIPTION  OF  THE  PARTIES 
 A.  The  News  Corporation  Limited 
 6.  News  Corp.  is  a  corporation  formed  under  the  laws  of  South  Australia  with  securities  that  are  publicly  traded  on  both  the  New  York  Stock  Exchange  and  the  Australian  Stock  Exchange.  5  News  Corp. 


 is  a  diversified  international  media  and  entertainment  company  with  operations  in  a  number  of  industry  segments,  including:  filmed  entertainment,  television,  cable  network  programming,  magazines  and 
 inserts,  news  papers,  and  book  publishing.  6  Shareholders  holding  a  greater  than  10%  interest  in  News  Corp.  are  K.  Rupert  Murdoch,  a  U.  S.  citizen  and  chief  executive  of  News  Corp.,  who  directly  and 
 indirectly  controls  an  approximately  16%  equity  and  30%  voting  interest  in  News  Corp.,  7  and  Liberty  Media  Corporation  (  Liberty),  a  Delaware  corporation,  which  holds  preferred  limited  voting  ordinary 
 shares  representing  approximately  17.6%  of  the  shares  of  News  Corp.  but  with  no  voting  rights  except  in  limited  instances.  8  Liberty  holds  interests  in  domestic  and  international  video  programming,  interactive 
 technology  services,  and  communications  businesses  in  the  United  States,  Europe,  Latin  America,  and  Asia.  9  Among  its  holdings  are  majority  ownership  interests  in  Starz  Encore  Group  LLC  (100%)  and 


 5  See  Application,  Volume  I,  C  for  a  chart  summarizing  the  relevant  News  Corp.  ownership  structure  prior  to  the 
 proposed  transaction;  see  also  News  Corporation  Limited,  SEC  Form  20-  F,  Annual  Report  for  the  fiscal  year  ended  June  30,  2003  at  5,  72  (  News  Corp.  20-  F  2003  Annual  Report). 


 6  See  News  Corp.  20-  F  2003  Annual  Report  at  5. 
 7  This  approximate  percentage  is  calculated  based  on  2,097,473,050  ordinary  shares  outstanding  on  Sep.  30,  2003, 
 and  includes  ordinary  shares  owned  by:  (1)  K.  Rupert  Murdoch;  (2)  Cruden  Investments,  Limited,  a  private  Australian  investment  company  owned  by  K.  Rupert  Murdoch,  members  of  his  family  and  various  corporations 


 and  trusts,  the  beneficiaries  of  which  include  K.  Rupert  Murdoch,  members  of  his  family  and  certain  charities;  and  (3)  corporations  which  are  controlled  by  trustees  of  settlements  and  trusts  established  for  the  benefit  of  the 
 Murdoch  family,  certain  charities,  and  other  persons.  In  addition,  K.  Rupert  Murdoch,  Cruden  Investments,  Limited  and  such  other  entities  beneficially  own  217,126,040  preferred  limited  voting  ordinary  shares.  See  News 
 Corp.  20-  F  2003  Annual  Report  at  5,  70. 
 8  A  holder  of  News  Corp.  preferred  limited  voting  ordinary  shares  is  entitled  to  vote  on:  a  proposal  to  reduce  the 
 share  of  capital  of  the  company;  on  a  proposal  to  wind  up  or  during  the  winding-  up  of  a  company;  a  proposal  for  the  disposal  of  the  whole  of  the  property,  business,  and  undertaking  of  the  company;  a  proposal  that  affects  rights 


 attached  to  such  preferred  shares;  a  resolution  to  approve  the  terms  of  a  buy-  back  agreement;  and  during  a  period  in  which  a  dividend  (or  part  of  a  dividend)  in  respect  of  the  preferred  shares  is  in  arrears.  See  News  Corp.  20-  F 
 2032  Annual  Report  at  p.  F-  39;  see  also  Liberty  Media  Corporation,  SEC  Form  10-  K,  Annual  Report  for  the  fiscal  year  ended  Dec.  31,  2002  at  p.  I-  6  (  Liberty  10-  K  2002  Annual  Report).  On  October  6,  2003,  the  News  Corp. 
 notified  the  Commission  that  Liberty  had  exercised  its  right  to  purchase  $500  million  in  News  Corp.  preferred  limited  voting  ordinary  American  Depository  Receipts  (  ADRs),  increasing  Libertys  passive  interest  in  News 
 Corp.  from  approximately  17.6%  to  approximately  19%  of  the  companys  issued  and  outstanding  stock.  If  News  Corp.  were  to  exercise  its  right  to  offer  ADRs  as  consideration  in  connection  with  its  acquisition  of  an  interest  in 
 Hughes  to  the  maximum  extent  permissible  under  the  documents  governing  the  proposed  transaction,  Libertys  ownership  interest  in  News  Corp.  would  be  diluted  to  approximately  17.3%,  based  on  current  stock  prices.  See 
 Letter  from  William  M.  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP  to  Marlene  H.  Dortch,  Secretary,  FCC  (Oct.  6,  2003). 


 9  See  Liberty  10-  K  2002  Annual  Report  at  p.  I-  1.  On  May  12,  2003,  EchoStar  Satellite  Corporation  (  EchoStar) 
 filed  a  Petition  to  Require  Additional  Information  requesting  that  the  Commission  require  the  Applicants  to  submit  information  concerning  the  planned  involvement  of  Liberty  in  the  financing  of  the  proposed  purchase  by  News 


 Corp.  in  Hughes.  See  EchoStar  Petition  to  Require  Additional  Information,  May  12,  2003  at  2-  5.  EchoStar  also  (continued.) 
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 Liberty  Satellite  and  Technology,  Inc.  (87%),  and  minority  interests  in  a  number  of  other  companies.  10  Liberty  also  holds  a  controlling  interest  in  Astrolink  International  LLC,  and  the  largest  plurality  interest  in 
 Wildblue  Communications,  Inc.,  both  Commission  licensees  authorized  to  construct,  launch  and  operate  satellites  using  frequencies  in  the  Ka-  band.  11 


 7.  News  Corp.  holds  its  U.  S.  programming  interests  through  its  Fox  Entertainment  Group,  Inc.  subsidiary,  a  Delaware  corporation,  in  which  News  Corp.  currently  holds  an  approximately  80.6% 
 ownership  and  97%  voting  interest.  12  The  remaining  19.4%  equity  is  publicly  traded  on  the  New  York  Stock  Exchange.  13  The  Fox  Entertainment  Group,  Inc.  is  principally  engaged  in  the  development, 
 production  and  distribution  of  television  broadcasting  and  cable  network  programming.  14  Its  programming  interests  include  Fox  Broadcasting  Company,  Fox  Television  Stations,  Twentieth  Century 
 Fox  Film,  Twentieth  Century  Fox  Television,  Fox  News  Channel,  and  Fox  Cable  Networks.  15  News  Corp.  indirectly  holds  interests  in  a  number  of  direct-  to-  home  (  DTH)  subscription  services,  all  of  which 
 operate  outside  the  United  States,  including  a  35%  indirect  interest  in  British  Sky  Broadcasting  (  BSkyB),  which  operates  in  the  United  Kingdom  and  Ireland.  16  In  addition,  News  Corp.  holds  an 
 approximately  42.9%  interest  in  Gemstar-  TV  Guide  International,  Inc.  (  Gemstar),  which,  among  other  things,  produces  an  electronic  program  guide  for  on-  screen  navigation  of  program  offerings.  17  News 
 Corp.  also  holds  an  approximately  79%  equity  interest  in  NDS  Group  plc  (  NDS),  a  supplier  of  conditional  access  systems  that  provide  secure  solutions  for  pay  television  systems.  18 


 (Continued  from  previous  page)  requested  the  Commission  to  require  Applicants  to  provide  expert  testimony  in  support  of  their  key  economic 
 assertions,  including  information  about  assertions  concerning  the  relevant  product  and  geographic  markets  and  the  Applicants  market  power  in  these  markets.  Id.  at  5-  6.  On  May  13,  2003,  the  Applicants  filed  a  Decl.  of 
 Lawrence  A.  Jacobs,  Executive  Vice  President  and  Deputy  Counsel  to  News  Corp.,  to  expand  and  reiterate  on  Libertys  interest  in  News  Corp.  and  the  proposed  transaction.  See  Letter  from  William  M.  Wiltshire,  Harris, 
 Wiltshire  &  Grannis,  LLP  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  13,  2003),  forwarding  the  Decl.  of  Lawrence  A.  Jacobs  (  News  Corp.  Decl.).  Both  the  EchoStar  Petition  to  Require  Additional  Information  and  the 
 News  Corp.  Decl.  were  made  part  of  the  record  of  this  proceeding. 
 10  Companies  in  which  Liberty  holds  a  minority  interest  include  Discovery  Communications  (50%),  OpenTV 
 Corp.  (46%),  QVC  (42%),  Sprint  PCS  Group  (19%),  and  USA  Interactive  (20%).  Liberty  also  holds  less  than  a  one  percent  interest  in  the  GMH  tracking  stock  issued  by  GM.  See  Liberty  10-  K  2002  Annual  Report  at  I-  5,  I-  21. 


 11  Id.  at  I-  21. 
 12  See  News  Corp.  20-  F  2003  Annual  Report  at  6;  see  also  Fox  Entertainment  Group,  Inc.,  SEC  Form  10-  K, 
 Annual  Report  for  the  fiscal  year  ended  June  30,  2003  at  1  (  FEG  10-  K  2003  Annual  Report). 
 13  See  FEG  10-  K  2003  Annual  Report  at  20. 


 14  Id.  at  1-  10. 
 15  See  Application,  Volume  I,  F  for  a  list  of  News  Corp.  s  national  and  regional  cable  programming  interests  in  the 
 United  States. 
 16  See  News  Corp.  20-  F  2003  Annual  Report  at  18. 


 17  Id.  at  17. 
 18  Id.  at  19;  Application  at  10. 
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 Federal  Communications  Commission  FCC  03-  330 
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 B.  General  Motors  Corporation  and  Hughes  Electronics  Corporation 
 8.  Hughes,  a  Delaware  corporation,  is  a  wholly  owned  subsidiary  of  GM,  also  a  Delaware  corporation.  19  Hughes  holds  a  number  of  Commission  licenses  and  authorizations  directly  or  through  its 


 wholly-  or  majority-  owned  subsidiaries.  20  Hughes  wholly-  owned  subsidiaries  include  both  DirecTV,  the  parent  company  of  DirecTV  Enterprises,  LLC,  and  United  States  Satellite  Broadcasting  Company,  Inc., 
 both  Commission  DBS  licensees.  21  DirecTV  currently  provides  service  to  U.  S.  consumers  from  seven  DBS  satellites  using  32  channels  at  101  W.  L.  orbital  location,  three  channels  at  110  W.  L.  orbital 
 location,  and  11  channels  at  119  W.  L.  orbital  location.  22  In  the  United  States,  DirecTV,  together  with  certain  independent  distributors,  have  approximately  11.9  million  DBS  subscribers.  23  HNS  also  is  a 
 wholly-  owned  subsidiary  of  Hughes  and  holds  a  number  of  authorizations  for  transmit/  receive  earth  stations  and  VSAT  networks  for  use  of  frequencies  in  the  C-  and  Ku-  bands,  as  well  as  authorizations  for 
 the  construction,  launch  and  operation  of  the  Ka-  band  SPACEWAY  Satellite  System.  24  Hughes  also  indirectly  holds  an  approximately  81%  economic  and  voting  interest  in  PanAmSat,  a  publicly  traded 
 Delaware  corporation  and  the  corporate  parent  of  PanAmSat  Licensee  Corp.,  a  Commission  licensee  that  holds  authorizations  to  operate  fixed  satellite  service  systems  using  the  C-  and  Ku-  bands,  as  well  as 
 authorizations  for  numerous  earth  stations  which  are  licensed  to  transmit  and  receive  frequencies  in  the  C-  and  Ku-  bands.  25 


 19  GM  has  issued  a  publicly  traded  tracking  common  stock  (GM  Class  H  common  stock)  designed  to  provide 
 shareholders  with  financial  returns  based  on  the  economic  performance  of  the  business  and  assets  of  GMs  wholly-  owned  Hughes  subsidiary.  See  General  Motors  Corp.,  SEC  Form  10-  K,  Annual  Report  for  the  fiscal  year 


 ended  Dec.  31,  2002  (  GM  10-  K  2002  Annual  Report);  see  also  Hughes  Electronic  Corp.,  SEC  Form  10-  K,  Annual  Report  for  the  fiscal  year  ended  Dec.  31,  2002  (  Hughes  10-  K  2002  Annual  Report). 


 20  A  complete  list  of  licenses  and  authorizations  held  by  Hughes  and  subject  to  this  transfer  of  control  Application 
 is  set  forth  in  the  Application,  Volume  I,  A. 
 21  See  Hughes  10-  K  2002  Annual  Report  at  3,  85. 


 22  See  Tempo  Satellite  Inc.  and  Hello  Enterprises,  Inc.,  14  FCC  Rcd  7946  (IB  1999)  (  Tempo-  Hello  Order);  see 
 also  Hello  Enterprises,  Inc.,  7  FCC  Rcd  2728  (IB  1992)  and  7  FCC  Rcd  6597  (IB  1992). 
 23  Of  these,  approximately  10.3  million  subscribe  directly  to  DirecTV,  while  the  remainder  subscribe  through  the 
 National  Rural  Telecommunications  Cooperative  (  NRTC).  See  Hughes  Electronic  Corp.,  SEC  Form  10-  Q,  Quarterly  Report  for  the  period  ending  Sep.  30,  2003  at  32,  37  (  Hughes  10-  Q  September  2003  Report).  Hughes 


 also  has  an  interest  in  direct-  to-  home  (  DTH)  and  other  satellite  services  in  several  foreign  countries.  See  Hughes  10-  K  2002  Annual  Report  at  3-  4.  Licenses  for  the  services  provided  in  foreign  countries,  however,  are 
 not  part  of  the  proposed  transaction.  See  Application  at  6,  n.  12. 
 24  See  Hughes  10-  K  2002  Annual  Report  at  4. 


 25  See  PanAmSat  Corp.,  SEC  Form  10-  K,  Annual  Report  for  the  fiscal  year  ended  Dec.  31,  2002  at  2  (  PanAmSat 
 10-  K  2002  Annual  Report);  see  also  Hughes  10-  K  2002  Annual  Report  at  4.  See  Hughes  Communications,  Inc.,  12  FCC  Rcd  7534  (1997).  With  the  exception  of  six  satellite  earth  station  licenses  held  by  PanAmSat,  none  of  the 


 licenses  controlled  by  Hughes  is  a  common  carrier  or  broadcast  radio  license.  See  Application  at  5,  n.  7.  The  Commission  granted  PanAmSats  applications  to  remove  the  common  carrier  designation  from  its  earth  station 
 licenses  earlier  this  year.  See  FCC  Public  Notice,  Report  No.  SES-  00506  (rel.  Jun.  11,  2003)  (notice  of  grant  of  applications  SES-  MOD-  20030425-  00533;  SES-  MOD-  20030425-  00534;  SES-  MOD-  20030425-  00537);  FCC 
 Public  Notice,  Report  No.  SES-  00510  (rel.  Jun.  25,  2003)  (notice  of  grant  of  applications  SES-  MOD-  20030425-  00535  and  SES-  MOD-  20030425-  00536;  FCC  Public  Notice,  Report  No.  SES-  00514  (rel.  Jul.  9,  2003)  (notice  of 
 (continued.) 
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 Federal  Communications  Commission  FCC  03-  330 
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 C.  The  Proposed  Transaction 
 9.  The  transaction  will  be  accomplished  in  two  parts.  GM  will  split  off  Hughes  and  divest  its  interest  in  Hughes  such  that  Hughes  will  become  a  separate  and  independent  company.  As  a  result  of 


 these  and  several  related  transactions,  News  Corp.  will  own  a  34%  interest  in  Hughes,  and  will  become  the  largest  single  holder  of  Hughes  stock.  Three  GM  employee  benefit  trusts  managed  by  an  independent 
 trustee  will  own  a  combined  approximately  20%  interest  in  Hughes,  and  the  remaining  46%  interest  in  Hughes  will  be  held  by  the  general  public.  26 


 10.  The  Split-  Off  of  Hughes.  27  Hughes  is  currently  part  of  GM.  GM  has  issued  a  tracking  stock,  GM  Class  H  common  stock  (  GMH  shares)  to  investors  who  wish  to  invest  in  Hughes.  The  GMH 
 shares  are  held  by  the  public  and  are  traded  on  the  New  York  Stock  Exchange  (  NYSE).  The  total  number  of  GMH  shares  issued  and  outstanding  as  of  the  date  of  the  Application  represented  an 
 approximate  80.1%  indirect  economic  interest  in  the  financial  performance  of  Hughes,  the  largest  block  of  which  is  held  by  three  GM  employee  benefit  trusts.  28  GM  itself  owns  all  of  the  common  stock  of 
 Hughes,  holds  all  of  Hughes  voting  power,  and  retains  the  remaining  approximately  19.9%  economic  interest  in  Hughes.  29  As  one  of  the  first  steps  of  the  proposed  transaction  after  the  payment  by  Hughes  to 
 GM  of  a  $275  million  dividend,  GM  will  distribute  to  the  holders  of  GMH  shares  new  shares  of  Hughes  common  stock  in  exchange  for  the  outstanding  GMH  shares    on  a  share-  for-  share  basis.  30  GMs  19.9% 
 interest  in  Hughes  will  be  represented  by  Hughes  Class  B  common  stock.  31 
 11.  The  Stock  Purchase.  32  Simultaneous  with  the  Hughes  split-  off,  News  Corp.  will  purchase  GMs  approximately  19.9%  interest  in  Hughes  for  $14  per  share  33  payable  in  cash,  or,  at  News  Corp. 


 election,  up  to  20%  of  the  total  amount  may  be  paid  to  GM  in  News  Corp.  preferred  limited  voting  ordinary  American  Depository  Receipts  (  ADRs).  34 


 (Continued  from  previous  page)  grant  of  SES-  MOD-  20030425-  00532).  PanAmSat  also  has  notified  the  Commission  of  discontinuance  of  service 
 under  its  inactive  section  214  authorizations.  See  Application  at  5,  n.  7;  FCC  Public  Notice,  18  FCC  Rcd  10552  (2003)  (public  notice  of  PanAmSats  intent  to  surrender  authorizations  ITC-  214-  19980102-  00004,  ITC-  93-  236, 
 ITC-  95-  579,  ITC-  85-  221  and  ITC-  85-  069). 
 26  For  details  of  the  proposed  transaction,  see  Application,  Volume  II,  which  includes  the  Separation  Agreement, 
 Merger  Agreement,  and  Stock  Purchase  Agreement;  see  also  Application  at  10. 
 27  See  Application,  Volume  II,  Separation  Agreement. 


 28  See  Application  at  11. 
 29  Id. 
 30  Id. 
 31  Id. 
 32  See  Application,  Volume  II,  Stock  Purchase  Agreement. 
 33  This  will  amount  to  approximately  $3.8  billion,  subject  to  adjustments  as  described  in  the  Application. 
 34  See  Application  at  11. 
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 Federal  Communications  Commission  FCC  03-  330 
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 12.  The  Merger.  35  News  Corp.  will  form  a  new  subsidiary  specially  created  to  merge  with  Hughes  (  merger  subsidiary).  Immediately  following  the  split-  off  and  stock  purchase  described  above, 
 the  merger  subsidiary  will  merge  with  and  into  Hughes,  with  Hughes  being  the  surviving  corporation.  36  In  connection  with  the  merger,  News  Corp.  will  acquire  from  the  former  GMH  shareholders  an  additional 
 14.1%  of  Hughes  for  $14  per  share  payable  at  News  Corp.  s  election  in  the  form  of  News  Corp.  preferred  ADRs,  cash,  or  a  combination  of  preferred  ADRs  and  cash.  37  As  a  result  of  the  merger,  each  former 
 GMH  shareholder  will  receive  for  each  of  their  Hughes  shares  owned,  consideration  of  which  approximately  82.4%  will  consist  of  equity  in  Hughes  and  17.6%  will  consist  of  News  Corp.  preferred 
 ADRs  and/  or  cash.  38  Automatically  upon  consummation  of  the  merger,  the  Hughes  Class  B  common  stock  acquired  by  News  Corp.  from  GM  will  be  converted  on  a  share-  for-  share  basis  into  Hughes 
 common  stock  with  no  class.  The  consequence  of  these  transactions  is  that  after  the  merger,  News  Corp.  will  hold  34%  of  Hughes  common  stock  and  the  former  GMH  shareholders  will  hold  66%  of  Hughes 
 common  stock.  39  Immediately  following  the  merger,  the  shares  of  Hughes  acquired  by  News  Corp.  will  be  transferred  to  FEG  or  a  wholly-  owned  subsidiary  of  FEG  for  a  combination  of  a  promissory  note  and 
 stock  in  FEG.  The  acquisition  of  this  stock  will  increase  News  Corp.  s  ownership  interest  in  FEG,  currently  80.6%,  to  approximately  82%.  40 


 13.  The  Resulting  Ownership  and  Management  Structure.  41  As  a  result  of  the  proposed  transactions,  Hughes  will  become  an  independent  company  incorporated  in  the  United  States  with  a  single 
 class  of  publicly  traded  common  stock.  News  Corp.,  through  its  FEG  subsidiary,  will  control  the  single  largest  block  of  shares  in  Hughes  with  a  34%  interest.  The  remaining  66%  interest  in  Hughes  will  be  held 
 by  the  former  owners  of  GMH  shares.  Of  this  public  shareholding,  trusts  established  under  various  GM  employee  benefit  plans  will  hold,  in  the  aggregate,  an  approximately  20%  interest.  42  The  United  States 
 Trust  Company  of  New  York  (  US  Trust)  serves  as  the  independent  trustee  of  each  of  those  trusts  with  respect  to  such  shares,  and  is  therefore  expected  to  initially  hold,  in  the  aggregate,  approximately  20%  of 
 the  voting  power  of  Hughes  common  stock.  Subject  to  its  fiduciary  duties  as  trustee,  US  Trust  will  have  sole  discretion  in  exercising  those  voting  rights.  The  remaining  shares  will  be  widely  held  by  the  public. 
 Hughes  will  continue  to  own  indirectly  approximately  81%  of  the  shares  of  PanAmSat.  After  the  transaction,  GM  will  no  longer  hold  any  shares  of  Hughes  common  stock.  43 


 35  See  Application,  Volume  II,  Merger  Agreement. 
 36  See  Application  at  12. 
 37  Id. 
 38  Id. 
 39  Id. 
 40  Id. 
 41  See  Application,  Volume  I,  D,  Hughes  Simplified  Ownership  Structure  of  FCC  Licenses  (Post-  Transaction), 
 Principal  Ownership  List,  Officers  and  Board  of  Directors. 
 42  See  Application  at  12. 


 43  Id.  at  13. 
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 Federal  Communications  Commission  FCC  03-  330 
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 14.  The  Applicants  state  that,  after  the  closing  of  the  transaction,  Hughes  board  of  directors  will  consist  of  11  members,  of  which  six  will  be  independent.  44  The  parties  have  agreed  upon  an  initial  slate 
 of  directors,  all  of  whom  are  U.  S.  citizens  and  include  K.  Rupert  Murdoch  as  chairman  of  the  board  and  Chase  Carey  as  CEO.  45  The  board  will  have  an  Audit  Committee  comprised  entirely  of  independent 
 directors.  Among  its  other  functions,  the  Audit  Committee  will  review  and  approve  all  related-  party  transactions  in  such  amounts  and  related  to  such  matters  as  the  Audit  Committee  determines. 
 Accordingly,  because  News  Corp.  and  its  programming  vendor  subsidiaries  would  be  considered  related  parties,  any  transaction  they  might  enter  into  with  Hughes  or  DirecTV  may  be  subject  to  review  and 
 approval  by  the  Audit  Committee.  46  No  single  shareholder  will  have  a  de  jure  controlling  interest  in  the  company  either  through  a  majority  interest  in  voting  stock  or  majority  representation  on  the  board. 
 Because  News  Corp.  will  indirectly  control  a  34%  interest  in  Hughes  and  its  former  employee  will  be  CEO,  News  Corp.,  for  purposes  of  the  Communications  Act,  will  exercise  de  facto  control  over  Hughes. 


 III.  STANDARD  OF  REVIEW  AND  PUBLIC  INTEREST  FRAMEWORK 
 15.  The  Commission  must  determine  whether  the  Applicants  have  demonstrated  that  the  proposed  transfer  of  control  of  licenses  from  GM  to  News  Corp.  will  serve  the  public  interest, 


 convenience,  and  necessity.  47  The  public  interest  standard  involves  a  balancing  of  potential  public  interest  harms  of  the  proposed  transaction  and  the  potential  public  interest  benefits.  48  The  Applicants  bear 
 the  burden  of  proving,  by  a  preponderance  of  the  evidence,  that  the  proposed  transaction,  on  balance,  serves  the  public  interest.  49 


 16.  Our  public  interest  evaluation  under  Section  310(  d)  necessarily  encompasses  the  broad  aims  of  the  Communications  Act,  50  which  includes,  among  other  things,  preserving  and  enhancing 
 competition  in  relevant  markets,  ensuring  that  a  diversity  of  voices  is  made  available  to  the  public,  and 


 44  Id. 
 45  There  is  no  corporate  governance  mechanism  that  ensures  that  News  Corp.  will  continue  to  have  four 
 representatives  on  the  board,  or  that  Mr.  Murdoch  and  Mr.  Carey  will  continue  to  hold  the  position  of  chairman  and  CEO,  respectively.  See  Application  at  13,  n.  23. 


 46  Id.  at  13. 
 47  47  U.  S.  C.    310(  d). 
 48  See,  e.  g.,  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  from  Comcast  Corporation  and  AT&  T 
 Corp.  (Transferors)  to  AT&  T  Comcast  Corp.  (Transferee),  17  FCC  Rcd  23246,  23255  (2002)  (  Comcast-  AT&  T  Order);  see  also  EchoStar  Communications  Corporation,  General  Motors  Corporation,  Hughes  Electronics 


 Corporation  (Transferors)  and  EchoStar  Communications  Corporation  (Transferees),  17  FCC  Rcd  20559,  20574  (  EchoStar-  DirecTV  HDO). 


 49  See,  e.  g.,  Comcast-  AT&  T  Order,  17  FCC  Rcd  at  23255;  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20574.  If  we 
 are  unable  to  find  that  the  proposed  transaction  serves  the  public  interest  for  any  reason,  or  if  the  record  presents  a  substantial  and  material  question  of  fact,  Section  309(  e)  of  the  Act  requires  that  we  designate  the  application  for 


 hearing.  47  U.  S.  C.    309(  e). 
 50  Comcast-  AT&  T  Order,  17  FCC  Rcd  at  23255;  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20575. 
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 Federal  Communications  Commission  FCC  03-  330 
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 accelerating  private  sector  deployment  of  advanced  services.  51  To  apply  our  public  interest  test,  then,  we  must  determine  whether  the  transaction  violates  our  rules,  or  would  otherwise  frustrate  implementation  or 
 enforcement  of  the  Communications  Act  and  federal  communication  policy.  That  policy  is  shaped  by  Congress  and  deeply  rooted  in  a  preference  for  competitive  processes  and  outcomes.  52 


 17.  Our  determination  of  the  competitive  effects  of  the  proposed  transaction  under  the  public  interest  standard  is  not  limited  by  traditional  antitrust  principles.  53  The  Commission  and  the  Department 
 of  Justice  (  DOJ)  each  have  independent  authority  to  examine  communications  transactions  involving  mergers  and  acquisitions,  but  the  standards  governing  the  Commissions  review  differ  from  those  of 
 DOJ.  54  The  review  conducted  by  DOJ  is  pursuant  to  Section  7  of  the  Clayton  Act,  which  prohibits  transactions  that  are  likely  to  substantially  lessen  competition  in  any  line  of  commerce.  55  The 
 Commission,  on  the  other  hand,  is  charged  with  determining  whether  the  transaction  serves  the  broader  public  interest.  56 


 51  See  47  U.  S.  C.    157  nt,  254,  332(  c)(  7),  Telecommunications  Act  of  1996,  Preamble;  Comcast-  AT&  T  Order, 
 17  FCC  Rcd  at  23255;  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20575;  AT&  T-  MediaOne  Order,  15  FCC  Rcd  at  9821;  cf.  47  U.  S.  C.    521(  4),  532(  a). 


 52  See,  e.  g.,  MCI  Telecommunications  Corporation  and  EchoStar  110  Corporation,  Order  and  Authorization,  16 
 FCC  Rcd  21608  (1999)  (quoting  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  from  Tele-  Communications,  Inc.,  Transferor,  to  AT&  T  Corp.,  Transferee,  14  FCC  Rcd  3160  at   


 14  (1999)  (  AT&  T-  TCI  Order)). 
 53  See  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20575  (citing  Satellite  Business  Systems,  62  F.  C.  C.  2d  997,  1088 
 (1977)  affd  sub  nom  United  States  v.  FCC,  652  F.  2d  72  (DC  Cir.,  1980)  (en  banc);  Northern  Utilities  Service  Co.  v.  FERC,  993  F.  2d  937,  947-  48  (1  st  Cir.  1993)  (public  interest  standard  does  not  require  agencies  to  analyze 


 proposed  mergers  under  the  same  standards  that  the  Department  of  Justice  .  .  .  must  apply)). 
 54  See  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20575;  AT&  T-  TCI  Order,  14  FCC  Rcd  at  3168-  69. 


 55  15  U.  S.  C.    18. 
 56  For  example,  under  our  Section  310(  d)  public  interest  analysis,  we  consider  whether  the  transaction  is  consistent 
 with  the  Commissions  policies  to  advance  diversity.  It  has  long  been  a  basic  tenet  of  national  communications  policy  that  the  widest  possible  dissemination  of  information  from  diverse  and  antagonistic  sources  is  essential  to 


 the  welfare  of  the  public.  See,  e.  g.,  Turner  Broadcasting  System,  Inc.  v.  FCC,  512  U.  S.  622,  663  (1994)  quoting  United  States  v.  Midwest  Video  Corp.,  406  U.  S.  649,  668  n.  27  (1972).  Our  public  interest  analysis  may  also 
 consider  whether  the  proposed  transfer  of  control  will  affect  the  quality  of  communications  services  or  will  result  in  the  provision  of  new  or  additional  services  to  consumers  (see  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20575; 
 AT&  T-  MediaOne  Order,  15  FCC  Rcd  at  9821);  whether  the  applicant  has  the  requisite  citizenship,  character,  financial,  technical,  and  other  qualifications  to  hold  a  Commission  license  (see,  e.  g.,  47  U.  S.  C.    310(  d)  and 
 308(  b));  and  we  may,  in  appropriate  cases,  take  foreign  ownership  into  account  to  determine  whether  there  are  public  interest  harms  resulting  from  foreign  investment  in  Title  III  licensees.  This  consideration  is  in  addition  to 
 our  review  of  foreign  ownership  that  may  otherwise  be  required  under  Section  310(  a)  and  (b)  of  the  Act.  See,  e.  g.,  Orbital  Communications  Corporation  and  ORBCOMM  Global,  L.  P.  (Assignors)  and  ORBCOMM  License 
 Corp.  and  ORBCOMM  LLC  (Assignees),  17  FCC  Rcd  4496,  4506-  07  (IB  2002)  (  Orbcomm  Order).  Finally,  where  necessary,  we  may  also  consider  whether  the  transaction  raises  issues  of  national  security,  law  enforcement, 
 foreign  policy  and  trade  policy,  including  any  such  concerns  that  may  be  raised  by  the  Executive  Branch.  See  Amendment  of  the  Commission's  Regulatory  Policies  to  Allow  Non-  U.  S.  Licensed  Space  Stations  to  Provide 
 Domestic  and  International  Service  in  the  United  States,  12  FCC  Rcd  24094,  24170  (1997)  (  DISCO  II  Order). 
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 IV.  COMPLIANCE  WITH  COMMUNICATIONS  ACT  AND  COMMISSION  RULES  AND  POLICIES 
 A.  Licensing  Qualifications 
 18.  Background.  As  a  threshold  matter,  we  must  determine  whether  the  Applicants  meet  the  requisite  qualifications  under  the  Act  and  our  rules.  57  Among  the  factors  the  Commission  considers  in  its 


 public  interest  review  is  whether  the  applicant  for  a  license  has  the  requisite  citizenship,  character,  financial,  technical,  and  other  qualifications.  58  No  issues  have  been  raised  in  this  case  that  would  require 
 us  to  re-  evaluate  the  basic  qualifications  of  Hughes,  the  transferor,  and  we  thus  find  that  Hughes  is  a  qualified  transferor.  As  to  the  qualifications  of  the  transferee,  Section  310(  d)  requires  that  the 
 Commission  consider  the  qualifications  of  the  proposed  transferee  as  if  the  transferee  were  applying  for  the  license  directly  under  Section  308  of  the  Act.  59  Therefore,  our  review  of  the  transferee,  News  Corp., 
 includes  examination  of  whether  News  Corp.  has  the  requisite  citizenship,  character,  and  financial,  technical,  and  other  qualifications  that  we  require  of  all  applicants  for  a  Commission  license.  60 


 19.  Position  of  Parties.  EchoStar  is  the  only  party  that  challenges  News  Corp.  s  qualifications  to  be  a  Commission  licensee  on  the  basis  of  character.  EchoStars  assertions  relate  to  a  pending  criminal 
 investigation,  as  well  as  pending  civil  litigation  cases,  filed  against  NDS  Group,  plc.  (  NDS),  a  company  that  is  79%  owned  by  News  Corp.  61  EchoStar  asserts  that  NDS  is  reportedly  the  subject  of  a  criminal 
 investigation  by  the  U.  S.  Attorney  Generals  office  for,  among  other  things,  the  willful  violation  of  criminal  statutes  outlawing  the  circumvention  of  disabling  of  encryption  technology  (i.  e.,  hacking).  62 
 This  investigation,  according  to  EchoStar,  may  possibly  lead  to  criminal  indictments  resulting  in  a  felony  conviction  that  could  implicate  the  Commissions  character  policy  as  to  News  Corp.  s  qualifications.  63 


 20.  EchoStar  also  claims  that  NDS  is  the  defendant  in  civil  law  suits  brought  by  EchoStar,  Canal+  (Vivendi  Universal),  DirecTV,  and  EchoStar  and  NagraStar  L.  L.  C.  (  NagraStar).  64  According  to 
 EchoStar,  these  lawsuits  involve  allegations  of,  inter  alia,  willful  hacking  of  the  security  functions  of  a  number  of  MVPD  platforms;  unfair  competition  in  the  provision  of  mass  media-  related  services; 


 57  47  U.  S.  C.    310(  d). 
 58  See  47  U.  S.  C.    310(  d)  and  308. 
 59  See  47  U.  S.  C.    308. 
 60  News  Corp.,  through  its  subsidiaries,  already  holds  Commission  licenses  under  Title  III.  See,  e.  g.,  Applications 
 of  UTV  of  San  Francisco,  Inc.,  et  al.,  (Assignors)  and  Fox  Television  Stations,  Inc.  (Assignee)  For  Consent  to  the  Assignment  of  Licenses  for  Stations  KBHK-  TV,  San  Francisco,  CA,  et  al.,  16  FCC  Rcd  14975  (2001)  (  UTV  of 


 San  Francisco  Order). 
 61  EchoStar  Petition  at  50-  57.  See  also    7,  supra. 


 62  EchoStar  Petition  at  50-  52.  EchoStar  asserts  that  the  Attorney  Generals  investigation  involves  criminal  and 
 civil  liability  under  the  Digital  Millennium  Copyright  Act  and  related  statutes. 
 63  Id. 


 64  EchoStar  Petition  at  50,  51,  54.  EchoStar  notes  that  Canal  +  (Vivendi  Universal)  recently  settled  its  lawsuit 
 against  NDS  for  willful  hacking  of  its  encryption  software,  unfair  competition,  and  violations  of  the  Communications  Act  of  1934.  Id.  at  55. 
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 corporate  sabotage  and  satellite  signal  piracy;  violations  of  the  California  unfair  competition  statute,  the  Digital  Millennium  Copyright  Act  (  DMCA),  and  the  Communications  Act  of  1934;  breach  of  contract, 
 fraud,  breach  of  warranty  and  misappropriation  of  trade  secrets.  65 
 21.  EchoStar  argues  that  the  pending  federal  criminal  investigation  and  civil  litigation  cases  involve  matters  that  should  be  of  paramount  concern  to  the  Commission.  66  In  addition,  EchoStar 


 maintains  that  a  possible  finding  that  NDS  has  engaged  in  such  alleged  activities  would  be  highly  relevant  to  the  application  of  the  Commissions  character  policy  to  News  Corp.  s  qualifications.  67  Thus,  EchoStar 
 submits  that  the  Commission  should  put  the  current  proceeding  on  hold  while  it  undertakes  its  own  investigation  of  these  factual  allegations  68  or  at  least  await  the  outcome  of  the  criminal  investigation.  69 
 EchoStar  surmises  that,  in  the  alternative,  should  the  U.  S.  Attorney  Generals  investigation  result  in  a  felony  conviction,  the  Commission  would  be  faced  with  an  extremely  burdensome  license  revocation 
 proceeding.  70  Finally,  EchoStar  asserts  that  News  Corp.  failed  to  report  the  criminal  investigation  of  NDSs  activities  on  its  FCC  Form  312  Application  in  this  proceeding  even  though  these  facts  are  directly 
 relevant  to  the  Commissions  analysis  of  its  qualifications.  71 
 22.  In  response,  the  Applicants  point  out  that  EchoStar  took  the  opposite  position  on  the  relevance  of  pending  such  proceedings  just  last  year  when  its  own  qualifications  were  challenged  in 


 connection  with  its  plan  to  merge  with  Hughes,  based  on  its  alleged  failure  to  engage  in  collective  bargaining  and  other  labor  law  concerns.  72  The  Applicants  point  out  that  in  that  case,  the  Commission 
 held  that  any  unadjudicated  non-  FCC  violations  as  to  EchoStar  should  be  resolved  by  the  governmental  agency  with  proper  jurisdiction.  73 


 23.  Discussion.  The  Commission  has  long  held  that  character  qualifications  of  an  applicant  or  licensee  are  relevant  to  the  Commissions  public  interest  analysis  and  that  an  applicants  or  licensees 
 willingness  to  violate  other  laws,  and  in  particular  to  commit  felonies,  also  bears  on  our  confidence  that  an  applicant  or  licensee  will  conform  to  FCC  rules  and  policies.  To  this  end,  the  Commission  has 
 determined  that,  in  deciding  character  issues,  it  will  consider  certain  forms  of  adjudicated,  non-  FCC  related  misconduct  that  includes:  (1)  felony  convictions;  (2)  fraudulent  misrepresentations  to 


 65  Id. 
 66  EchoStar  Petition  at  51. 
 67  Id.  at  52. 
 68  Id.  at  56-  57. 
 69  EchoStar  contends  that  the  Commission  has  repeatedly  stayed  its  hand  to  await  the  result  of  proceedings  that 
 implicate  issues  key  to  the  assessment  of  an  applicants  character.  Id. 
 70  Id.  at  56. 


 71  Id.  at  57  (citing  FCC  Form  312,  Questions  39,  37). 
 72  Applicants  Reply  at  77. 
 73  Id.  (citing  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20579). 
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 governmental  units;  and  (3)  violations  of  antitrust  or  other  laws  protecting  competition.  74  The  Commission  has  also  stated  that  it  will  consider  non-  FCC  related  misconduct  of  the  licensees  or 
 applicants  parent  or  related  subsidiary  where  there  is  a  sufficient  nexus  between  the  licensee  or  applicant  and  the  parent  corporation  or  a  related  subsidiary.  75  Further,  the  Commission  has  used  its  character  policy 
 in  the  broadcast  area  as  guidance  in  resolving  similar  questions  in  transfer  of  common  carrier  authorizations  and  other  license  transfer  proceedings.  76 


 24.  We  do  not  agree  with  EchoStar  that  the  alleged  pending  federal  criminal  investigation  and  civil  cases  against  NDS  warrant  disqualification  of  News  Corp.  on  the  basis  of  character.  Unadjudicated 
 non-  FCC  violations  should  be  resolved  by  a  court  with  proper  jurisdiction  and  should  not  be  pre-  judged  by  our  processes.  77  Because  the  investigation  and  civil  cases  cited  by  EchoStar  are  pending  matters,  they 
 are  irrelevant  to  News  Corps  character  qualifications  under  the  Commissions  long-  held  position  that  there  must  be  an  ultimate  adjudication  before  an  appropriate  trier  of  fact,  either  by  a  government  agency 
 or  court,  before  we  will  consider  the  activity  in  our  character  determinations.  78 
 25.  We  also  do  not  agree  with  EchoStar  that  we  should  hold  this  proceeding  in  abeyance  in  order  to  undertake  a  separate  investigation  into  the  matters  alleged,  or  await  the  outcome  of  the  criminal 


 investigation  by  the  Attorney  Generals  Office.  79  The  cases  cited  by  EchoStar  do  not  persuade  us  otherwise.  80  Both  of  the  cases  cited  by  EchoStar  involve  previous  findings  by  an  appropriate  trier  of  fact 
 of  misconduct  on  behalf  of  the  applicants  or  licensees  parent.  81  In  those  cases,  the  Commission  was  justified  in  its  decision  to  delay  resolution  of  the  related  license  applications  to  allow  consideration  of  the 
 adjudicated  misconduct  in  its  license  review  process.  The  instant  case  involves  allegations  concerning  a  pending  criminal  investigation  and  various  pending  civil  lawsuits,  none  of  which  have  been  finally 


 74  Policy  Regarding  Character  Qualifications  in  Broadcast  Licensing,  102  F.  C.  C.  2d  1179,  1209-  10  (1986) 
 (  Character  Policy  Statement  1986),  modified,  5  FCC  Rcd  3252  (1990),  recon.  granted  in  part,  6  FCC  Rcd  3448  (1991),  modified  in  part,  7  FCC  Rcd  6564  (1992)  (collectively  Broadcast  Licensing  Character  Qualifications). 


 75  See,  e.  g.,  Broadcast  Licensing  Character  Qualifications,  7  FCC  Rcd  at  6567,    16.  As  a  general  matter,  non-FCC 
 misconduct  by  parent  or  related  subsidiary  is  reportable  if  (a)  there  is  a  close  ongoing  relationship  between  the  parent  (or  related  subsidiary)  and  the  licensee;  (b)  the  two  have  common  principals;  and  (c)  the  common 


 principals  are  actively  involved  in  the  operations  of  the  licensee.  Id.  Misconduct  directly  involving  common  principals  is  reportable  where  the  common  principal  of  the  licensee  or  applicant  was  in  control  of  the  other  entity 
 or  was  adjudicated  to  be  directly  involved  in  the  other  entitys  misconduct.  Id.  n.  51. 
 76  See  Broadcast  Licensing  Character  Qualifications,  7  FCC  Rcd  at  6567;  see  also  MCI  Telecommunications 
 Corp.,  3  FCC  Rcd  509,  515  n.  14  (1988). 
 77  See  Character  Policy  Statement  1986,  102  F.  C.  C.  2d  at  1205. 


 78  Id. 
 79  See  EchoStar  Petition  at  56-  57. 
 80  See  EchoStar  Petition  at  51,  56-  57  (citing  Continental  Satellite  Corporation,  4  FCC  Rcd  6292,  6299  (1989) 
 (  Continental  Order);  RKO  General,  Inc.,  3  FCC  Rcd  5057,  5058  (1988)  (  RKO  Order),  appeal  dismissed  sub  nom.  Los  Angeles  Television  v.  FCC,  No.  88-  1693  (D.  C.  Cir.  Aug.  4,  1989)). 


 81  See  Continental  Order,  4  FCC  Rcd  at  6298  (citing  Central  Telecommunications,  Inc.  v  TCI  Cablevision,  610  F. 
 Supp.  891  (W.  D.  Mo.  1985),  affd,  800  F.  2d  711  (8  th  Cir.  1986),  cert.  denied  480  U.  S.  910  (1987);  and  RKO  Order,  3  FCC  Rcd  5057,  5058). 
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 adjudicated.  As  we  do  not  typically  give  consideration  to  pending  matters  not  involving  FCC-  related  misconduct  in  reaching  character  determinations,  it  would  be  inappropriate  to  rely  on  these  pending 
 matters  as  a  basis  for  delaying  resolution  of  the  instant  Application.  82  Indeed,  holding  this  proceeding  in  abeyance  on  the  grounds  advocated  by  EchoStar  would  only  create  uncertainty,  delay,  and  expense  that 
 would  disserve  the  public  interest. 
 26.  Finally,  EchoStars  assertion  that  News  Corp.  failed  to  report  the  criminal  investigation  of  NDSs  activities  on  FCC  Form  312  lacks  merit.  The  Commissions  rules  do  not  impose  upon  applicants  a 


 requirement  to  report  pending  criminal  investigations,  83  nor  does  the  application  filed  in  this  proceeding,  FCC  Form  312,  require  specific  disclosure  of  pending  criminal  matters  prior  to  conviction.  84  The  pending 
 matters  referred  to  in  question  39  of  FCC  Form  312  relate  to  cases  where  there  has  been  a  conviction  (as  may  be  listed  in  response  to  question  37)  or  adjudication  of  guilt  (as  may  be  listed  in  response  to  question 
 38)  of  the  party  to  the  application  or  of  a  party  directly  or  indirectly  controlling  the  applicant.  85 
 B.  Foreign  Ownership 
 27.  Background.  Generally,  foreign  ownership  interests  in  Title  III  licensees  are  governed  by  Section  310(  a)  and  (b)  of  the  Act.  86  The  policies  and  rules  implementing  these  foreign  ownership 


 provisions  with  respect  to  satellite  services  are  largely  articulated  in  the  DISCO  II  Order,  and  support  the  Commissions  policy  objectives  of  promoting  competition  in  the  U.  S.  market  and  achieving  a  more 
 competitive  global  satellite  market.  87  The  DISCO  II  Order  and  a  companion  decision,  the  Foreign  Participation  Order,  88  are  the  initial  Commission  decisions  implementing  market  opening  commitments 
 made  by  the  United  States  in  the  World  Trade  Organization  (  WTO)  Agreement  on  Basic  Telecommunications  Services  (  WTO  Basic  Telecom  Agreement),  89  and  remain  central  to  the 
 Commissions  overall  foreign  ownership  policy  today. 


 82  See  Character  Policy  Statement  1986,  102  F.  C.  C.  2d  1205. 
 83  See  47  C.  F.  R.    1.65. 
 84  See  Lockheed  Martin  Corp.,  et  al.,  17  FCC  Rcd  13160,  13166    16  (2002).  See  also  Application  for  Space  and 
 Earth  Station  Authorizations  For  Transfer  of  Control  or  Assignment,  FCC  312  Main  Form  (  FCC  Form  312),  which  requires  that  an  applicant  or  any  party  directly  or  indirectly  controlling  the  applicant  inform  the 


 Commission  of  a  conviction  of  a  felony  in  any  state  or  federal  court  (question  37)  or  a  courts  final  adjudication  of  unlawful  monopolization  or  unfair  methods  of  competition  (question  38).  See  FCC  Form  312,  Questions  37,  38. 


 85  See  Lockheed  Martin  Corp.,  et  al,  17  FCC  Rcd  13160,  13166    16  (2002).  Question  39  of  FCC  Form  312  asks 
 whether  the  applicant,  or  any  person  directly  or  indirectly  controlling  the  applicant,  is  currently  a  party  in  any  pending  matter  referred  to  in  the  preceding  two  items  (i.  e.,  questions  37  and  38).  See  FCC  Form  312,  Question 


 39. 
 86  47  U.  S.  C.    310(  a)  and  (b). 


 87  See  DISCO  II  Order,  12  FCC  Rcd  at  24097. 
 88  See  Rules  and  Policies  on  Foreign  Participation  in  the  U.  S.  Telecommunications  Market,  12  FCC  Rcd  23891, 
 23894  (1997)  (Foreign  Participation  Order);  Order  on  Reconsideration,  15  FCC  Rcd  18158  (2000). 
 89  This  agreement,  which  became  effective  on  January  1,  1998,  is  centered  on  the  principles  of  open  markets, 
 private  investment,  and  competition.  See  DISCO  II  Order,  12  FCC  Rcd  at  24096. 
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 28.  In  the  DISCO  II  Order,  the  Commission  implemented  a  number  of  measures  to  foster  competition  among  multiple  satellite  service  providers,  including  adoption  of  a  rebuttable  presumption 
 that  entry  by  WTO  Member  satellite  systems  will  promote  competition  in  the  United  States.  90  The  Commission,  however,  explicitly  did  not  apply  this  open  entry  presumption  to  satellites  providing  DBS, 
 Direct-  to-  Home  (  DTH),  and  Digital  Audio  Radio  Services  (  DARS),  as  these  services  were  not  covered  by  commitments  made  as  part  of  the  WTO  Basic  Telecom  Agreement  (i.  e.,  non-  WTO  covered 
 services).  91  The  Commission  determined  that  for  all  requests  to  provide  non-  WTO  covered  services  to  the  United  States  using  non-  U.  S.  licensed  satellites,  an  evaluation  was  required  to  determine  whether 
 effective  competitive  opportunities  (  ECO)  for  U.  S.  satellite  systems  were  available  in  the  country  in  which  the  foreign  satellite  was  licensed  (  ECO-  Sat  test).  92 


 29.  Position  of  Parties.  EchoStar  contends  that  the  Commission  should  determine  if  Australia  provides  effective  competitive  opportunities  to  U.  S.  companies  to  provide  the  same  service  News  Corp. 
 would  be  authorized  to  provide  in  the  United  States.  93  EchoStar  maintains  that  the  underlying  rationale  for  applying  the  DISCO  II  ECO-  Sat  test  to  the  provision  of  non-  WTO  covered  services,  i.  e.,  to 
 encourage  open  markets  for  these  services  and  to  avoid  anti-  competitive  conduct  in  the  U.  S.  market,  holds  whether  the  foreign  company  is  attempting  to  gain  entry  to  the  U.  S.  market  through  a  foreign 
 licensed  satellite  or  through  acquisition.  94  Accordingly,  EchoStar  argues  the  Commission  should  apply  the  ECO-  Sat  test  in  this  case.  95 


 30.  The  Applicants  respond  that  the  ECO-  Sat  test  is  wholly  irrelevant  to  this  proceeding.  They  assert  that  the  ECO-  Sat  test  applies  only  to  parties  requesting  authority  to  operate  with  a  non-  U.  S. 
 licensed  space  station  to  serve  the  United  States.  96  Thus,  by  its  terms,  Applicants  claim  the  ECO-  Sat  test  does  not  apply  to  foreign  investments  in  U.  S.  licensed  DBS  providers.  They  submit  that  this  position  is 
 confirmed  in  the  recent  SES-  DTH  Order.  97  Further,  the  Applicants  contend  that  application  of  the  ECO- 
 90  See  DISCO  II  Order,  12  FCC  Rcd  at  24098.  Opposing  parties  have  the  burden  to  rebut  the  presumption  by 
 showing  that  granting  the  application  would  cause  competitive  harm  in  the  U.  S.  satellite  market.  Id. 
 91  Id. 


 92  Id. 
 93  See  EchoStar  Petition  at  46-  50.  EchoStar  submits  Australia  is  one  of  News  Corp.  s  home  markets  because  it  is 
 incorporated  in  Australia  and  is  a  25%  owner  of  FOXTEL,  Australias  leading  subscription  television  provider.  Id.  at  47. 


 94  Id.  at  47,  quoting  DISCO  II  Order,  12  FCC  Rcd  at  24137,    98. 
 95  Id.  EchoStar  argues  that  News  Corp.  would  fail  both  the  de  jure  and  de  facto  components  of  the  ECO-  Sat  test 
 with  respect  to  Australia.  EchoStar  claims  de  jure  barriers  exist  due  to  statutory  limits  on  U.  S.  investments  for  subscription  television  broadcasting  licenses  and  programming  expenditure  requirements.  EchoStar  claims  de  facto 


 barriers  exist  due  to  a  content-  sharing  agreement  between  an  Australian  News  Corp.  affiliate  and  a  major  Australian  subscription  television  company.  Id.  at  47-  50. 


 96  Applicants  Reply  at  68  (citing  47  C.  F.  R.    25.137(  a);  and  DISCO  II,  12  FCC  Rcd  at  24136).  See  also  Letter 
 from  William  M.  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP  to  Marlene  H.  Dortch,  Secretary,  FCC  (Sept.  5,  2003)  (  Applicants  Sept.  5,  2003  Ex  Parte)  at  1-  2. 


 97  See  SES  AMERICOM,  Inc.  Applications  for  Modification  of  Fixed-  Satellite  Service  Space  Station  Licenses  and 
 Columbia  Communications  Corp.,  18  FCC  Rcd  18598  (IB  2003)  (  SES-  DTH  Order);  see  also  Applicants  Sept.  5,  2003  Ex  Parte  at  1-  2. 
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 Sat  test  to  U.  S.  licensed  systems  would  not  make  any  sense  as  a  matter  of  policy,  especially  in  view  of  the  Commissions  2002  DBS  Report  and  Order,  98  which  found  that  there  was  no  public  policy  justification 
 for  imposing  foreign  ownership  restrictions  on  DBS  providers,  in  part  because  such  restrictions  would  prevent  DBS  from  achieving  a  more  equal  regulatory  basis  with  cable,  which  is  not  subject  to  any 
 foreign  ownership  restrictions.  99  Alternatively,  the  Applicants  argue  that  even  if  the  ECO-  Sat  test  did  apply,  the  Commission  should  find  that  there  is  no  foreign  ownership  issue  in  this  proceeding  because 
 News  Corp.  s  home  market  is  the  United  States.  100 
 31.  Discussion.  Because  of  the  foreign  ownership  interests  presented  in  this  case,  101  we  first  consider  the  applicability  of  Section  310(  a)  and  (b)  of  the  Act.  102  We  find  that  neither  provision  applies 


 to  the  proposed  transaction.  No  foreign  government  or  its  representative  would  hold  any  of  the  subject  licenses.  Thus,  our  review  does  not  fall  under  Section  310(  a)  of  the  Act,  which  prohibits  any  foreign 
 government  or  the  representative  thereof  from  holding  a  license.  103  Further,  the  Application  before  us  involves  the  transfer  of  control  of  earth  station  licenses,  space  station  licenses  for  provision  of  FSS  and 
 DBS  service,  and  wireless  licenses,  all  of  which  are  held,  and  are  to  be  transferred,  on  a  non-  common  carrier  basis.  104  Thus,  we  find  that  the  proposed  transaction  does  not  involve  a  broadcast  or  common 
 carrier  or  aeronautical  en  route  or  aeronautical  fixed  radio  station  license,  and  the  statutory  provisions  of  Section  310(  b)  of  the  Act  do  not  apply.  105 


 32.  However,  in  the  2002  DBS  Report  and  Order,  the  Commission  stated  that  although  it  would  not  impose  additional  foreign  ownership  rules  on  providers  of  DBS  subscription  services  beyond  those 


 98  See  Policies  and  Rules  for  the  Direct  Broadcast  Satellite  Service,  17  FCC  Rcd  11311,  11348  (2002)  (  2002 
 DBS  Report  and  Order). 
 99  Applicants  Reply  at  68,  citing  2002  DBS  Report  and  Order,  17  FCC  Rcd  at  11348. 


 100  See  Applicants  Sept.  5,  2003  Ex  Parte  at  2-  4. 
 101  News  Corp.  is  incorporated  under  the  laws  of  South  Australia  with  securities  that  are  publicly  traded  on  both 
 the  New  York  Stock  Exchange  and  the  Australian  Stock  Exchange.  See  Application  at  7. 
 102  See  47  U.  S.  C.    310(  a)  and  (b). 


 103  See  47  U.  S.  C.    310(  a). 
 104  See  Application  at  5  n.  7  &  16  n.  30.  Subscription  DBS  service  is  a  non-  broadcast  service  and  where 
 subscription  DBS  service  is  provided  on  a  non-  common  carrier  basis  Section  310(  b)  of  the  Act  does  not  apply.  See  Subscription  Video  Order,  2  F.  C.  C.  2d  1001,  1007  (1987),  aff'd.,  National  Association  for  Better  Broadcasting 


 v.  FCC,  849  F.  2d  665  (D.  C.  Cir.  1988);  Subscription  Video  Order  Services,  4  FCC  Rcd  4948  (1989);  MCI  Telecommunications  Corp.,  11  FCC  Rcd  16275  (IB  1996);  Application  of  MCI  Telecommunications  Corp.,  et.  al., 
 14  FCC  Rcd  11077  (IB  1999). 
 105  Because  section  310(  b)  does  not  apply  to  the  proposed  transaction,  we  need  not  consider  whether  News  Corp.  s 
 acquisition  of  a  controlling  interest  in  the  subject  licenses  is  consistent  with  the  Commissions  decision  in  Fox  Television  Stations  or  is  otherwise  consistent  with  the  public  interest  under  section  301(  b)(  4)  of  the  Act.  See  Fox 


 Television  Stations,  Inc.,  Second  Memorandum  Opinion  and  Order,  11  FCC  Rcd  5714  (1995)  (Fox  II)  (subject  to  certain  limitations,  allowing  FTS,  as  presently  structured,  to  make  future  indirect  investments  in  broadcast  licensees 
 notwithstanding  News  Corp.  s  ownership  of  FTS  in  excess  of  the  25  percent  benchmark  for  indirect  foreign  ownership  set  by  section  310(  b)(  4)).  See  also  UTV  of  San  Francisco  Order,  16  FCC  Rcd  at  14977-  80. 
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 already  required  by  Section  310(  a)  and  (b)  of  the  Act,  106  in  deciding  questions  of  access  to  the  U.  S.  market  for  provision  of  DBS  service  through  use  of  non-  U.  S.  licensed  satellites,  the  Commission 
 concluded  that  it  would  apply  the  requirements  set  forth  in  the  DISCO  II  Order.  107  As  stated  earlier,  the  DISCO  II  Order  requires  that  the  Commission  apply  the  ECO-  Sat  test  to  all  requests  to  access  the  U.  S. 
 market  for  the  provision  of  non-  WTO  covered  services  (i.  e.,  DTH,  DBS  and  DARS)  using  non-  U.  S.  licensed  satellites.  108  Thus,  we  note  that  if  News  Corp.  were  seeking  to  operate  a  foreign-  licensed  satellite 
 to  provide  DBS  service  in  the  United  States,  we  would  not  permit  it  to  do  so  until  we  conducted  an  ECO-Sat  analysis.  109  The  proposed  transaction,  however,  does  not  involve  a  request  to  use  non-  U.  S.  licensed 
 satellites  but  rather  a  request  to  acquire  U.  S.  licensed  satellites  to  deliver  DBS  service  to  the  U.  S.  market.  As  such,  the  instant  transaction  does  not  fall  within  the  analytic  framework  adopted  by  the  Commission 
 in  the  DISCO  II  Order  and,  thus,  application  of  the  ECO-  Sat  test  is  not  required  in  this  case.  110 
 33.  Regardless  of  the  applicability  of  Section  310(  a)  and  (b)  of  the  Act  or  the  ECO-  Sat  test,  the  Commission  maintains  a  responsibility  pursuant  to  Section  310(  d)  to  examine  and  make  a  finding  as  to 


 whether  a  specific  transfer  or  assignment  involving  Title  III  licenses  will  serve  the  public  interest,  convenience,  and  necessity.  111  Thus,  consistent  with  our  responsibilities  under  Section  310(  d),  where 
 appropriate,  our  review  considers  whether  public  interest  harms  are  likely  to  result  from  foreign  investment  in  Title  III  licensees.  112  Therefore,  in  this  case,  we  consider  whether  foreign  investment  in  a 
 U.  S.  licensee  is  likely  to  distort  competition  in  any  relevant  U.  S.  market.  We  also  consider  whether  such  foreign  investment  will  further  competition  in  the  U.  S.  market  and  whether  efficiencies  and  other  public 
 interest  benefits  are  likely  to  result.  If  we  find  any  harms  resulting  from  foreign  investment,  these  harms  will  be  taken  into  consideration  in  the  overall  balancing  of  the  potential  public  interest  harms  and  benefits 
 of  the  proposed  transaction.  113 
 34.  EchoStar  argues  that  before  granting  the  instant  Application,  the  Commission  should  be  satisfied  that  Australia  provides  effective  competitive  opportunities  to  U.  S.  companies  to  provide  the 


 106  2002  DBS  Report  and  Order,  17  FCC  Rcd  at  11346-  48. 
 107  See  2002  DBS  Report  and  Order,  17  FCC  Rcd  at  11349. 
 108  See  DISCO  II  Order,  12  FCC  Rcd  at  24135. 
 109  See  DISCO  II  Order,  12  FCC  Rcd  at  24136.  See  also  Digital  Broadband  Applications  Corp.,  Consolidated 
 Application  for  Authority  to  Operate  U.  S.  Earth  Stations  with  a  U.  S.-  Licensed  Ku-  Band  FSS  Satellite  and  Canadian-  Licensed  Nimiq  and  Nimiq  2  Satellites  to  Offer  Integrated  Two-  Way  Broadband  Video  and  Data 


 Service  Throughout  the  United  States,  18  FCC  Rcd  9455  (2003)(  DBAC  Order). 
 110  In  addition,  we  note  that  the  Commission  has  concluded  that  there  is  no  public  policy  justification  for  imposing 
 foreign  ownership  restrictions  on  DBS  providers  that  are  not  subject  to  such  restrictions  under  Section  310(  b)  of  the  Act.  See  2002  DBS  Report  and  Order,  17  FCC  Rcd  at  11348.  Licensees  using  FSS  satellites  to  provide 


 subscription  DTH  service,  an  almost  identical  service  to  DBS,  are  not  subject  to  foreign  ownership  restrictions.  In  addition,  because  cable  operators  also  are  not  subject  to  foreign  ownership  restrictions,  eliminating  additional 
 foreign  ownership-  licensing  restrictions  not  otherwise  required  under  the  Act,  allows  DBS  to  compete  on  a  more  equal  regulatory  basis  with  cable  operators.  Id. 


 111  47  U.  S.  C.    310(  d). 
 112  See,  e.  g.,  Orbcomm  Order,  17  FCC  Rcd  4507    18;  SES-  DTH  Order,    10. 
 113  See  Section  IX,  infra. 
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 same  services  News  Corp.  would  be  authorized  to  provide  in  the  United  States.  114  We  are  not  persuaded  by  EchoStars  arguments  that  there  is  a  need  in  this  case  for  the  Commission  to  take  steps  to  ensure  that 
 U.  S.  companies  can  compete  effectively  in  Australia.  115  The  nature  of  our  inquiry  here  focuses  on  whether  the  provision  of  Title  III  services  by  a  U.  S.  licensee  (with  a  controlling  interest  held  by  a  foreign 
 incorporated  entity)  would  harm  competition  in  the  U.  S.  market.  EchoStars  argument,  at  best,  advances  the  position  that  U.  S.  licensees  could  be  at  a  competitive  disadvantage  in  the  Australian  market  due  to 
 Australias  statutory  and  regulatory  foreign  ownership  limitations  on  subscription  television.  116  EchoStar  does  not  provide  any  evidence  or  arguments  to  show  how  Australias  requirements  could  cause 
 competitive  distortions  or  competitive  harm  in  the  U.  S.  market.  For  example,  EchoStar  does  not  argue  or  show  how  News  Corp.  s  investment  could  limit  competitive  choices  for  U.  S.  consumers;  nor  does 
 EchoStar  argue  or  show  how  the  acquisition  of  a  controlling  interest  in  a  U.  S.  licensee  by  News  Corp.  could  result  in  increased  concentration  in  the  global  market,  and  thereby  cause  competitive  harm  in  the 
 U.  S.  market.  No  evidence  was  provided,  for  example,  that  DirecTV,  because  of  its  relationship  with  News  Corp.,  could  provide  DBS  services  to  the  U.  S.  market  that  a  U.  S.-  owned  operator  could  not 
 provide.  Based  on  our  review  of  the  record,  we  find  that  the  proposed  acquisition  of  Hughes  by  News  Corp.  is  not  likely  to  create  competitive  distortions  in  the  U.  S.  market  based  upon  News  Corp.  s 
 incorporation  or  activities  in  Australia.  117 
 C.  National  Security,  Law  Enforcement,  Foreign  Policy  and  Trade  Policy  Concerns 
 35.  As  part  of  our  public  interest  analysis,  our  review  takes  into  consideration  concerns  relating  to  national  security,  law  enforcement,  foreign  policy  and  trade  policy  that  may  present  public  interest 


 harm,  including  any  such  issues  raised  by  the  Executive  Branch.  118  If  the  Executive  Branch  raises 


 114  EchoStar  Petition  at  47. 
 115  Id.  at  46-  50. 
 116  Id.  at  48-  50.  In  response  to  EchoStars  arguments,  the  Applicants  submit  that  the  Australian  foreign  ownership 
 provisions  are  similar  to  the  U.  S.  limitations  imposed  on  direct  foreign  investment  in  U.  S.-  licensed  broadcast  and  common  carrier  licensees  under  Section  310(  b)(  3)  of  the  Act,  and  that  under  Australian  law,  there  is  no  limit  on  or 


 prohibition  against  foreign  control  of  a  subscription  DTH  licensee  company.  By  contrast,  the  Applicants  contend  that  under  U.  S.  law,  even  indirect  ownership  in  a  broadcast  or  common  carrier  licensee  is  presumptively  limited  to 
 no  more  than  a  non-  controlling  25%  interest  absent  authorization  from  the  Commission  to  exceed  that  benchmark.  Thus,  Applicants  state,  that  taken  as  a  whole,  the  Australian  subscription  DTH  market  is  at  least  as  open  to 
 foreign  investors  as  is  the  U.  S.  market.  See  Applicants  Sept.  5  Ex  Parte  at  5,  6. 
 117  According  to  the  Applicants,  News  Corp.  conducts  its  business  activities  principally  in  the  United  States, 
 Continental  Europe,  the  United  Kingdom,  Australia,  Asia  and  the  Pacific  Basin.  In  addition,  News  Corp.  states  that  it  derives  7%  of  its  operating  income  and  8%  of  its  revenues  from  a  combined  Australian/  Asian  market,  and 


 has  three  members  on  its  Board  of  Directors  who  are  citizens  of  Australia  and  one  member  on  the  Executive  Management  Committee  who  is  a  citizen  of  Australia.  See  Applicants  Sept.  5  Ex  Parte  at  2-  4;  see  also 
 Application,  Attachment  C. 
 118  See  DISCO  II  Order,  12  FCC  Rcd  at  24170-  72.  See  also,  e.  g.,  Lockheed  Martin  Global  Telecommunications, 
 Inc.,  et  al.,  16  FCC  Rcd  20502,  20508-  20510    12,  16  (2001);  Orion,  5  FCC  Rcd  at  4939    20;  Application  of  General  Electric  Capital  Corporation  and  SES  Global  S.  A.  for  Consent  to  Transfer  Control  of  Licenses  and 


 Authorizations  Pursuant  to  Section  214(  a)  and  310(  d)  of  the  Communications  Act,  16  FCC  Rcd  17575,  n.  78  (2001);  TMI  Communications  and  Company,  L.  P.  and  SatCom  Systems  Inc.,  File  No.  647-  DSE-  P/  L-  98  et  al,  14 
 FCC  Rcd  20798  at  20824    57  (1999). 
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 national  security,  law  enforcement,  foreign  policy  or  trade  policy  concerns,  we  accord  deference  to  its  expertise  on  such  matters.  119  On  November  25,  2003,  the  DOJ,  and  the  Federal  Bureau  of  Investigation 
 (  FBI),  with  the  concurrence  of  the  Department  of  Homeland  Security  (  DHS)  (collectively  referred  to  as  the  Executive  Agencies),  filed  a  Petition  to  Adopt  Conditions  to  Authorizations  and  Licenses 
 (  Petition  to  Adopt  Conditions),  120  along  with  attachments  in  this  proceeding.  121 
 36.  Specifically,  in  the  Petition  to  Adopt  Conditions,  the  Executive  Agencies  state  that  their  ability  to  satisfy  their  obligations  to  protect  the  national  security,  to  enforce  the  laws,  and  to  preserve  the 


 safety  of  the  public  could  be  significantly  impaired  by  transactions  in  which  foreign  entities  will  own  or  operate  a  part  of  the  U.  S.  communications  system,  or  in  which  foreign-  located  facilities  will  be  used  to 
 provide  domestic  communications  services  to  U.  S.  customers.  122  The  Executive  Agencies  note,  that  News  Corp.,  the  foreign  entity  acquiring  control  of  Hughes  (through  its  controlling  interest  in  FEG),  is 
 organized  under  the  laws  of  Australia.  123 
 37.  According  to  the  Executive  Agencies,  after  discussions  with  the  Applicants,  the  Executive  Agencies  concluded  that  the  commitments  set  forth  in  the  Hughes  By-  law  Amendment,  the  Proposed 


 Resolutions,  and  the  Letter  Agreement  were  adequate  to  ensure  that  the  Executive  Agencies  and  other  entities  with  responsibility  for  enforcing  the  law,  protecting  the  national  security  and  preserving  public 
 safety  can  proceed  in  a  legal,  secure  and  confidential  manner  to  satisfy  these  responsibilities.  124  Accordingly,  DOJ  and  FBI,  with  the  concurrence  of  DHS,  advised  the  Commission  that  they  have  no 
 objections  to  the  grant  of  the  Applicants  transfer  of  control  applications,  provided  that  the  Commission  condition  the  grant  of  the  transfer  of  control  applications  on  (i)  GM  causing  Hughes  to  adopt,  and  Hughes 
 adopting,  prior  to  the  closing  of  the  subject  transaction,  the  Hughes  By-  law  Amendment;  (ii)  the  adoption  by  the  Board  of  Directors  of  News  Corp.  of  the  Proposed  Resolutions;  and  (iii)  compliance  by  Hughes 
 and  News  Corp.,  respectively,  with  the  commitments  set  forth  in  the  Hughes  By-  laws  Amendment,  the  Proposed  Resolutions,  and  the  Letter  Agreement.  125 


 119  See  Foreign  Participation  Order,  12  FCC  Rcd  at  23918-  21. 
 120  See  Petition  to  Adopt  Conditions  to  Authorizations  and  Licenses,  MB  Docket  No.  03-  124  (filed  Nov.  25, 
 2003). 
 121  The  attachments  include  Exhibit  1,  Hughes  Electronics  Corporation,  Amended  and  Restated  By-  laws  (  Hughes 
 By-  law  Amendment);  Exhibit  2,  Proposed  Resolution  of  the  Board  of  Directors  of  The  News  Corporation  Limited  (  Proposed  Resolutions);  and  Exhibit  3,  Letter  Agreement,  dated  November  3,  2003,  reached  between 


 Hughes  and  the  Executive  Agencies  (  Letter  Agreement).  See  Petition  to  Adopt  Conditions  at  2.  These  exhibits  are  set  forth  in  Appendix  E  of  this  Order  and  Authorization. 


 122  See  Petition  to  Adopt  Conditions  at  4. 
 123  The  Executive  Agencies  also  note  that  K.  Rupert  Murdoch,  a  United  States  citizen,  directly  and  indirectly 
 controls  approximately  a  16%  equity/  30%  voting  interest  in  News  Corp.  and  that  apart  from  Liberty  Media  Corporation,  a  Delaware  corporation  which  according  to  the  Applicants  holds  a  purely  passive  interest  in  News 


 Corp.,  there  is  no  other  shareholder  with  a  greater  than  10%  interest  in  News  Corp.  Id.  at  4-  5. 
 124  Appendix  E  to  this  Order  and  Authorization  attaches  the  three  exhibits  as  Exhibit  1(  Hughes  By-  laws 
 Amendment);  Exhibit  2  (Proposed  Resolutions);  and  Exhibit  3  (Letter  Agreement). 
 125  See  Petition  to  Adopt  Conditions  at  5-  6.  See  also  Appendix  E. 
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 38.  In  assessing  the  public  interest,  we  consider  the  record  and  accord  the  appropriate  level  of  deference  to  Executive  Branch  expertise  on  national  security  and  law  enforcement  issues.  126  As  the 
 Commission  stated  in  the  Foreign  Participation  Order,  foreign  participation  in  the  U.  S.  telecommunications  market  may  implicate  significant  national  security  or  law  enforcement  issues 
 uniquely  within  the  expertise  of  the  Executive  Branch.  127  In  the  context  of  this  particular  proceeding,  we  consider  these  concerns  independent  of  our  own  separate  analysis.  Therefore,  in  accordance  with  the 
 request  of  the  Executive  Agencies,  in  the  absence  of  any  objection  from  the  Applicants,  and  given  the  discussion  above,  we  condition  our  grant  of  the  Applications  on  compliance  with  the  following 
 conditions:  (i)  GM  causing  Hughes  to  adopt,  and  Hughes  adopting,  prior  to  the  closing  of  the  subject  transaction,  the  Hughes  By-  law  Amendment;  (ii)  the  adoption  by  the  Board  of  Directors  of  News  Corp.  of 
 the  Proposed  Resolutions;  and  (iii)  compliance  by  Hughes  and  News  Corp.,  respectively,  with  the  commitments  set  forth  in  the  Hughes  By-  laws  Amendment,  the  Proposed  Resolutions,  and  the  Letter 
 Agreement.  128 
 V.  INTRODUCTION  TO  THE  VIDEO  PROGRMAMING  AND  MVPD  MARKETS 
 A.  Background 
 39.  The  proposed  transaction  involves  the  acquisition  by  News  Corp.,  a  major  owner  of  both  broadcast  and  cable  video  programming  content  and  programming-  related  technologies,  of  a  34%  interest 


 in  Hughes  Electronics,  owner  of  DirecTV,  a  DBS  provider  that  is  the  second  largest  MVPD  in  the  United  States  and  the  largest  MVPD  that  has  a  national  service  footprint.  News  Corp.  presently  has  no  MVPD 
 assets  in  the  United  States;  its  primary  domestic  business  is  the  provision  of  video  programming  to  MVPDs  in  every  area  of  the  country.  Similarly,  Hughes  currently  does  not  participate  in  the  video 
 programming  market  as  a  programming  supplier;  129  rather,  its  DirecTV  subsidiary  functions  purchaser  and  distributor  of  multichannel  video  programming  to  subscribing  customers.  130  By  acquiring  DirecTV, 
 News  Corp.  immediately  transforms  itself  from  a  supplier  of  video  programming  MVPDs  to  a  vertically  integrated  MVPD  competitor.  News  Corp.  thus  becomes  a  vertically  integrated  supplier  of  broadcast  and 
 cable  video  programming  to  all  of  its  MVPD  competitors  in  every  region  of  the  country. 
 40.  Applicants  have  alleged  that  a  combination  of  economic  forces,  existing  regulatory  constraints  and  their  own  program  access  and  program  carriage  commitments  will  suffice  to  protect 


 competition  and  consumers  against  potential  competitive  harms  arising  from  the  transaction.  131  Commenters  and  opponents  argue,  among  other  things,  that  News  Corp.  s  acquisition  of  a  controlling 


 126  See  Foreign  Participation  Order,  12  FCC  Rcd  at  23919-  21    61-  66. 
 127  See  Foreign  Participation  Order,  12  FCC  Rcd  at  23919    62. 
 128  See  Appendix  E.  A  complete  list  of  all  the  conditions  imposed  on  the  Applicants  is  contained  in  Appendix  F. 
 129  Although  Hughes  does  not  supply  programming  content,  it  is  involved  in  the  provision  of  fixed  satellite 
 services  (  FSS)  though  PanAmSat.  Most  distribution  of  video  programming  to  MVPD  service  providers  (and  to  over-  the-  air  television  broadcasters)  is  carried  over  FSS.  PanAmSat  is  a  significant  provider  of  FSS  services  and 


 is  81%  owned  by  Hughes.  The  impact  of  the  transaction  on  FSS  is  discussed  at  Section  VI.  C.  4.  e  below. 
 130  Hughes  only  programming  interest  is  a  5%  passive  equity  interest  in  the  Hallmark  Channel.  See  Application 
 at  46. 
 131  Application  at  47-  48;  Applicants  Reply  at  iii-  iv. 
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 interest  in  the  second  largest  MVPD  will  increase  the  incentive  and  ability  of  News  Corp.  to  seek  and  obtain  supra-  competitive  prices  for  its  video  programming  services  through  retransmission  consent 
 negotiations  for  its  local  broadcast  television  station  signals  and  in  affiliate  agreement  negotiations  for  its  regional  sports  cable  networks.  This,  they  contend,  will  increase  rival  MVPD  costs,  who  will  in  turn  seek 
 to  recover  these  increased  costs  through  end-  user  rate  increases,  a  result  not  foreclosed  by  either  the  program  access  or  retransmission  consent  rules,  or  the  Applicants  offered  additional  commitments.  132 
 Before  assessing  these  claims,  we  first  provide  some  background  on  relevant  Commission  rules  concerning  the  distribution  of  video  programming,  including  our  program  access  rules,  program  carriage 
 rules,  and  the  must-  carry/  retransmission  consent  requirements,  and  on  economic  theory  concerning  horizontal  and  vertical  transactions.  We  then  define  the  relevant  upstream  and  downstream  markets  and 
 consider  whether  the  transaction  is  likely  to  have  adverse  competitive  effects  in  those  markets. 
 B.  Applicable  Regulatory  Framework 
 1.  Program  Access  Requirements 
 41.  The  program  access  provisions,  contained  in  Section  628  of  the  Communications  Act,  were  adopted  as  part  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992.  133  At  the 


 time,  Congress  was  concerned  that  most  cable  operators  enjoyed  a  monopoly  in  program  distribution  at  the  local  level.  134  Congress  found  that  vertically  integrated  program  suppliers  had  the  incentive  and 
 ability  to  favor  their  affiliated  cable  operators  over  nonaffiliated  cable  operators  and  programming  distributors  using  other  technologies.  135  Section  628  is  intended  to  foster  the  development  of  competition 
 to  traditional  cable  systems  by  governing  the  access  of  competing  MVPDs  to  cable  programming  services.  DBS  was  among  the  technologies  that  Congress  intended  to  foster  through  the  program  access 
 provisions.  136  As  a  general  matter,  the  program  access  rules  prohibit  a  cable  operator,  a  satellite  cable  programming  vendor  137  in  which  a  cable  operator  has  an  attributable  interest,  or  a  satellite  broadcast 
 programming  vendor  from  engaging  in  unfair  methods  of  competition  or  unfair  or  deceptive  acts  or  practices,  the  purpose  or  effect  of  which  is  to  hinder  significantly  or  to  prevent  any  MVPD  from 
 providing  satellite  cable  programming  or  satellite  broadcast  programming  to  subscribers  of  consumers.  138  Thus,  Congress  in  1992  acknowledged  that  access  to  satellite  cable  programming  was  critical  to  ensure 


 132  See,  e.  g.,  ACA  Comments  at  7-  23;  Cablevision  Comments  at  8-  30;  CDD  Comments;  CFA  Reply  Comments  at 
 3-  12;  Consumers  Union  Sept  .  23,  2003  Ex  Parte;  EchoStar  Petition  at  11-  39,  58-  67;  JCC  Comments  at  13-  65;  NAB  Comments  at  5-  9,  15-  26;  NRTC  Petition  at  7-  15;  RCN  Comments  at  4-  11;  Pegasus  Comments. 


 133  Pub.  L.  No.  102-  385,  106  Stat.  1460  (1992)  (  1992  Cable  Act). 
 134  H.  R.  Conf.  Rep.  No.  102-  862,  at  93  (1992). 
 135  1992  Cable  Act    2(  a)(  5). 
 136  H.  R.  Rep.  No.  102-  628,  at  165-  66  (1992)  (additional  views  of  Messrs.  Tauzin,  Harris,  Cooper,  Synar,  Eckart, 
 Bruce,  Slattery,  Boucher,  Hall,  Holloway,  Upton  and  Hastert). 
 137  Satellite  cable  programming  is  video  programming  which  is  transmitted  via  satellite  to  cable  operators  for 
 retransmission  to  cable  subscribers.  47  C.  F.  R.    76.1000(  h).  A  satellite  cable  programming  vendor  is  an  entity  engaged  in  the  production,  creation  or  wholesale  distribution  for  sale  of  satellite  cable  programming.  47  C.  F.  R.   


 76.1000(  i). 
 138  Communications  Act    628(  b);  47  U.  S.  C.    548(  b). 
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 marketplace.  147  The  Commission  further  found  that  an  MVPDs  ability  to  provide  service  that  is  competitive  with  an  incumbent  cable  operator  is  significantly  harmed  if  denied  access  to  must  have 
 vertically  integrated  programming  for  which  there  are  no  good  substitutes,  such  as  regional  news  and  sports  networks.  148  The  Commission  also  found  that  vertically  integrated  programmers  retain  the 
 incentive  to  favor  their  affiliated  cable  operators  over  competing  MVPDs.  149  In  that  regard,  the  Commission  found  that  cable  operators  continue  to  dominate  the  MVPD  marketplace  and  that  horizontal 
 consolidation  and  clustering  combined  with  affiliation  with  regional  programming,  have  contributed  to  cables  overall  market  dominance.  150  In  addition,  the  Commission  determined  that  an  economic  basis  for 
 denial  of  access  to  vertically  integrated  programming  to  competitive  MVPDs  continues,  and  that  such  denial  would  harm  such  competitors  ability  to  compete  for  subscribers.  151  The  prohibition  on  exclusive 
 contracts  for  satellite-  delivered  cable  or  satellite-  delivered  broadcast  programming  was  therefore  extended  for  five  years,  until  October  5,  2007.  152 


 2.  Program  Carriage  Rules 
 45.  Our  rules  implementing  section  616  of  the  1992  Cable  Act  153  prohibit  all  MVPDs  from:  (1)  demanding  a  financial  interest  in  any  program  service  as  a  condition  of  carriage  of  the  service  on  its 


 system;  (2)  coercing  any  video  programming  vendor  to  provide  exclusive  rights  as  a  condition  of  carriage;  and  (3)  unreasonably  restraining  the  ability  a  video  programming  vendor  to  compete  fairly  by 
 discriminating  on  the  basis  of  affiliation  or  non-  affiliation  of  vendors  in  the  selection,  terms  or  conditions  of  carriage.  154  The  program  carriage  rules  also  specify  complaint  procedures  and  remedies  for  violations 
 of  these  requirements.  Complaints  may  be  brought  by  aggrieved  video  programmers  or  MVPDs.  155 


 147  Id.  at  12138    32. 
 148  Id.  at  12125    4. 
 149  Id.  at  12143    45. 
 150  Id.  at  12125    4. 
 151  Id. 
 152  Id.  at  12124    1. 
 153  See  47  U.  S.  C.    536(  a).  Congress  enacted  section  616  based  on  findings  that  some  cable  operators  had  required 
 certain  non-  affiliated  program  vendors  to  grant  exclusive  rights  to  programming,  a  financial  interest  in  the  programming,  or  some  other  additional  consideration  as  a  condition  of  carriage  on  the  cable  system. 


 Implementation  of  Sections  12  and  19  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  9  FCC  Rcd  2642    1  (1993). 


 154  See  47  C.  F.  R.    76.1301;  see  also  Implementation  of  Sections  12  and  19  of  the  Cable  Television  Consumer 
 Protection  and  Competition  Act  of  1992,  9  FCC  Rcd  2642  (1993). 
 155  Section  76.1302  authorizes  video  programming  vendors  and  MVPDs  to  file  program  carriage  complaints  with 
 the  Commission.  47  C.  F.  R.    76.1302;  see  also  Implementation  of  Sections  12  and  19  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  9  FCC  Rcd  2642    1  (1993).  On  reconsideration,  the 


 Commission  amended  47  C.  F.  R.    76.1302  to  specifically  afford  standing  to  MVPDs  aggrieved  by  carriage  agreements  between  other  MVPDs  and  programming  vendors  that  violate  section  616  of  the  1992  Cable  Act  or 
 the  Commissions  rules.  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  9  FCC  Rcd  4415,  4418-  19    24  (1994). 
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 3.  Must-  Carry  and  Retransmission  Consent 
 46.  In  adopting  the  mandatory  carriage  provisions  of  the  1992  Cable  Act,  Congress  recognized  the  importance  of  local  television  broadcast  stations  as  providers  of  free  local  news  and  public  affairs 


 programming.  156  Congress  found  that  cable  service  was  rapidly  penetrating  television  households,  and  increasingly  was  competing  with  free  over-  the-  air  television  for  advertising  dollars.  157  Congress 
 recognized  that  television  broadcast  stations  rely  on  advertising  dollars  to  provide  free  over-  the-  air  local  service,  and  that  competition  from  cable  television  posed  a  threat  to  the  economic  viability  of  television 
 broadcast  stations,  and  mandated  cable  carriage  to  ensure  the  continued  economic  viability  of  free  local  broadcast  television.  158 


 47.  Pursuant  to  these  rules,  commercial  television  broadcast  station  signals  are  carried  by  their  local  MVPDs  pursuant  to  either  mandatory  carriage  or  retransmission  consent.  159  For  cable  systems,  a 
 broadcast  station  is  entitled  to  mandatory  carriage  (i.  e.  must-  carry)  on  all  cable  systems  within  their  local  markets.  160  Where  a  television  broadcast  station  has  elected  must-  carry,  the  cable  operator  is  not 
 required  to  compensate  the  broadcaster.  161  Alternatively,  the  station  and  the  cable  operator  can  negotiate  the  terms  of  carriage  through  retransmission  consent  negotiations.  162  The  must-  carry  obligations  of  DBS 
 operators  differ  slightly  from  those  of  cable  operators.  In  markets  where  a  DBS  operator  carries  any  station  to  subscribers  within  the  stations  local  market  (i.  e.,  local-  into-  local  carriage),  pursuant  to  the 
 Statutory  Copyright  license  all  broadcast  stations  in  the  market  have  a  right  to  mandatory  carriage  by  that  DBS  operator  (i.  e.  the  carry-  one,  carry-  all  requirement).  163  Broadcasters  also  have  the  option  of 
 negotiating  terms  of  retransmission  with  the  DBS  operator.  Under  the  Act  and  the  Commissions  rules,  television  stations  are  prohibited  from  entering  into  exclusive  retransmission  agreements,  and  must 
 negotiate  in  good  faith  with  MVPDs.  164  By  statute,  the  exclusivity  and  good  faith  negotiation  requirements  are  effective  until  January  1  2006.  165 


 48.  By  the  time  Congress  enacted  the  must-  carry/  retransmission  consent  provisions  of  the 
 156  House  Committee  on  Energy  and  Commerce,  H.  R.  Conf.  Rep.  No.  102-  862  ("  Conference  Report"),  102d  Cong., 
 2d  Sess.  (1992),  reprinted  at  138  Cong.  Rec.  H8308  (Sept.  14,  1992)  at  2. 
 157  Conference  Report  at  3. 


 158  Conference  Report  at  3. 
 159  Noncommercial  television  stations  do  not  have  retransmission  consent  rights. 
 160  47  C.  F.  R.    76.56. 
 161  47  C.  F.  R.    76.60. 
 162  47  C.  F.  R.    76.64. 
 163  47  C.  F.  R.    76.66. 
 164  See  47  U.  S.  C.    325(  b)(  3)(  C);  47  C.  F.  R.    76.65;  Implementation  of  Satellite  Home  Viewer  Improvement  Act  of 
 1999,  Retransmission  Consent  Issues:  Good  Faith  Negotiation  and  Exclusivity  15  FCC  Rcd  5445,  5463    45  (  Good  Faith  Negotiation  Order). 


 165  See  47  U.  S.  C.    325(  b)(  3)(  C).  See  also,  47  C.  F.  R.    76.65(  f)(  good  faith  negotiation  requirement  sunsets  at 
 midnight  on  Dec.  31,  2005). 
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 Satellite  Home  Viewer  Improvement  Act  of  1999  (  SHVIA),  Congress  had  recognized  the  importance  of  local  television  broadcast  signals  not  only  as  providers  of  a  valuable  public  service,  but  as  must-  have 
 programming  critical  to  a  DBS  offering.  By  permitting  DBS  operators  to  carry  local  television  broadcast  signals,  Congress  sought  to  place  DBS  operators  on  a  level  playing  field  with  their  cable  counterparts  so 
 that  they  could  compete  more  effectively  with  cable  operators.  166  To  ensure  that  broadcasters  negotiated  fairly  with  these  relatively  new  entrants  into  the  MVPD  market,  Congress  enacted  the  good  faith 
 negotiation  requirement  and  prohibition  exclusive  retransmission  consent  agreements.  Congress  explicitly  stated  that  good  faith  negotiation  did  not  equate  to  a  requirement  that  broadcasters  grant 
 retransmission  consent  on  the  same  terms  and  conditions  to  all  MVPDs.  167 
 C.  Relevant  Markets 
 49.  DirecTV  is  one  of  two  full-  CONUS  DBS  providers  and  the  second  largest  MVPD  in  the  U.  S,  providing  service  in  all  50  states.  168  It  offers  more  than  825  channels  of  sports,  news,  movies,  and  family 


 programming,  including  local  broadcast  channels  in  64  television  markets,  high  definition  and  foreign-language  programming  to  nearly  12  million  customers.  169  News  Corp.  is  a  global  media  corporation 
 owning  a  wide  variety  of  video  programming  products  from  cable  and  broadcast  networks  to  broadcast  television  stations  which  they  sell  to  MVPDs  across  the  country.  Included  in  its  suite  of  video 
 programming  products  are  the  Fox  broadcast  network,  one  of  the  four  major  national  broadcast  networks,  35  owned  and  operated  (O&  O)  full-  power  local  television  broadcast  stations,  including  two  stations  in 
 three  of  the  top  five  and  five  of  the  top  ten  markets,  10  nationally  distributed  cable  networks,  12  owned  and  managed  regional  cable  networks,  170  and  171  independently  owned  local  television  stations  that  are 
 affiliated  with  the  Fox  Network.  171  News  Corp.  s  cable  programming  assets  include  the  Fox  News  Channel,  Speedvision,  FX,  Fox  Movie  Channel,  and  the  National  Geographic  Channel.  News  Corp. 
 controls  a  wide  array  of  regional  and  national  sports  programming  channels,  as  well  as  valuable  program 


 166  See  H.  R.  Rep.  No.  106-  79  at  11-  15  (1999);  Satellite  Home  Viewer  Improvement  Act,  Pub.  L.  No.  106-  113,  113 
 Stat.  1501,  at  App.  I  at  1501A-  523  &  544. 
 167  47  U.  S.  C.  325(  b)(  3)(  C)(  ii)  (stating  that  it  shall  not  be  a  failure  to  negotiate  in  good  faith  if  the  television 
 broadcast  station  enters  into  retransmission  consent  agreements  containing  different  terms  and  conditions,  including  price  terms,  with  different  multichannel  video  programming  distributors  if  such  different  terms  and 


 conditions  are  based  on  competitive  marketplace  considerations). 
 168  As  of  the  end  of  the  third  quarter,  DirecTV  had  11.  85  million  subscribers.  See  Hughes  Announces  Third  Quarter 
 Growth  of  17%  in  Revenues  and  33%  in  Operating  Profit  Before  D&  A;  Operating  Profit  Quadruples;  DirecTV  Adds  326,000  Owned  and  Operated  Subscribers  in  the  Quarter,  a  58%  Increase  Over  Last  Year,  Oct.  14,  2003, 


 available  at:  http://  www.  hughes.  com/  ir/  releases/  2003_  results/  q3_  2003/  default.  asp  (viewed  Nov.  14,  2003).  DirecTV  has  surpassed  the  total  subscribers  of  Time  Warner  Cable,  Inc.,  which  had  11.  4  million  subscribers  as  of 
 September  30,  2003.  See  Time  Warner  Inc.  Consolidated  Balance  Sheet,  available  at:  http://  www.  timewarner.  com/  investors/  quarterly_  earnings/  2003_  3q/  pdf/  3q2003charts.  pdf  (viewed  Nov.  14,  2003). 
 Thus,  DirecTV  is  now  second  only  to  Comcast  in  terms  of  subscribership. 
 169  Hughes  Electronics  Corporation,  General  Overview  at  http://  www.  hughes.  com/  ir/  general/  default.  asp  (visited 
 Nov.  5,  2003). 
 170  Since  filing  the  application  for  transfer  of  control,  News  Corp.  has  launched  an  additional  network,  Fuel,  which 
 brings  the  number  of  nationally  distributed  channels  to  11. 
 171  FEG  10-  K  2003  Annual  Report  at  7. 
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 production  assets.  172  News  Corps  broadcast  stations  carry  UPN  and  Fox  programming,  which  includes  the  World  Series  and  other  Major  League  Baseball  post-  season  games,  the  16  National  Football 
 Conference  (  NFC)  teams  of  the  National  Football  League  (  NFL),  and  popular  shows  like  The  Simpsons,  American  Idol  and  Joe  Millionaire.  173  In  addition,  News  Corp.  controls  the  national 
 broadcast  rights  to  National  Association  of  Stock  Car  Auto  Racing  (  NASCAR)  races  and  several  major  packages  of  college  basketball  and  football  games  nationwide.  174 


 50.  In  evaluating  the  potential  competitive  effects  of  the  transaction,  it  is  necessary  to  first  define  the  product  and  geographic  markets.  175  A  relevant  market  is  defined  as  a  product  or  group  of  products 
 and  a  geographic  area  in  which  the  product  or  products  are  produced  or  sold  such  that  a  hypothetical  profit-  maximizing  monopolist  would  impose  at  least  a  small  but  significant  and  nontransitory  increase 
 in  price,  assuming  the  terms  of  sale  of  all  other  products  are  held  constant.  176 
 1.  Product  Markets 
 51.  In  analyzing  vertical  issues  in  MVPD  transactions,  as  the  Applicants  note,  the  Commission  has  generally  examined  two  separate  but  related  product  markets:  (1)  the  acquisition  of  programming 


 (  the  programming  market);  and  (2)  the  distribution  of  programming  to  consumers  (  the  distribution  market).  177  We  agree  that  the  Applicants  are  significant  participants  in  both  of  these  product  markets, 
 and  therefore  analyze  them  in  detail  in  this  section. 
 a.  MVPD  Services 
 52.  Positions  of  the  Parties.  The  Applicants  begin  by  observing  that  the  Commission  has  previously  found  that  DBS  operators  compete  in  a  market  composed  of  all  MPVD  providers,  178  and  that 


 although  the  Commission  has  considered  at  times  that  a  more  narrowly  drawn  market  may  be  appropriate,  it  has  continued  to  use  the  MPVD  product  market  for  its  competition  analysis  in  recent  cases. 
 Accordingly,  Applicants  propose  that  the  MVPD  market  is  the  relevant  product  market  for  purposes  of 


 172  News  Corp.  s  sports  networks  include  Fox  Sports  World,  Fox  Sports  en  Espanol,  Fox  Sports  Digital  Networks, 
 and  12  RSNs  Fox  Sports  Net  Arizona,  Fox  Sports  Net  Detroit,  Fox  Sports  Net  Midwest,  Fox  Sports  Net  North,  Fox  Sports  Net  Northwest,  Fox  Sports  Net  Pittsburgh,  Fox  Sports  Net  Rocky  Mountain,  Fox  Sports  Net 


 Southwest,  Fox  Sports  Net  West,  Fox  Sports  Net  West  2,  and  the  Sunshine  Network.  See  Application  at  Attachment  F. 


 173  Application  at  47;  FEG  10-  K  2003  Annual  Report  at  7,  27.  See  also  FEG  Presentation,  Bear  Stearns  Media, 
 Entertainment,  and  Information  Conference,  slide  19  (Mar.  4,  2003),  available  at:  http://  www.  newscorp.  com/  investor/  download/  bearstearns03/  sld019.  gif  (visited  on  Dec.  12,  2003). 


 174  JCC  Comments  at  38. 
 175  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20605-  06    106;  Comcast-  AT&  T  Order,  17  FCC  Rcd  23260-  61    42. 
 176  DOJ/  FTC  Guidelines    1.0. 
 177  Application  at  47  (citing  2002  Annual  Video  Competition  Report,  17  FCC  Rcd.  at  26910  (distribution  market); 
 id.  at  26953  (programming  market);  MCIT,  16  FCC  Rcd.  at  21613-  14  (1999)  (finding  that  DBS  operators  compete  in  two  product  markets). 


 178  Application  at  44. 
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 analyzing  the  issues  presented  by  this  transaction.  179  Intelsat  agrees,  asserting  that  the  Commission  and  antitrust  authorities  have  traditionally  defined  markets  in  a  technology-  neutral  manner,  180  and  urging  the 
 Commission  to  recognize  the  interchangeability  of  space  and  terrestrial  transmission  facilities  when  defining  the  appropriate  product  market  in  its  analysis  of  the  Application.  181  NRTC,  on  the  other  hand, 
 contends  that  the  decision  of  whether  to  consider  cable  systems  with  low  channel  capacities  in  the  same  product  market  as  DBS  should  be  determined  by  an  administrative  law  judge  at  hearing.  182  CFA  asserts 
 that  DBS  and  cable  occupy  somewhat  different  product  spaces  due  to  the  lack  of  local  channels  on  DBS  in  many  markets,  the  unavailability  of  DBS  in  urban  areas  because  of  line  of  sight  problems,  and  cost.  183 
 CFA  asserts  that  this  is  best  evidenced  by  the  fact  that  competition  from  DBS  has  not  constrained  cable  prices.  184  CFA  does  not  urge  the  Commission  to  define  the  product  market  differently,  but  seeks  to 
 emphasize  the  lack  of  constraint  on  cable  prices  as  part  of  its  broader  claim  that  the  transaction  will  raise  prices  of  DBS  and  cable.  185 


 53.  Discussion.  In  the  EchoStar-  DirecTV  HDO,  the  Commission  determined  that  the  relevant  product  market  that  includes  services  offered  by  DBS  providers  was  no  broader  than  the  entire  MVPD 
 market,  but  may  well  be  narrower.  186  For  the  purpose  of  analyzing  the  competitive  effects  of  the  transaction  before  us  we  may  again  safely  presume  that  the  relevant  downstream  product  market  is  no 
 broader  than  the  MVPD  market.  As  we  have  noted,  and  our  analysis  below  demonstrates,  by  purchasing  Hughes  and  its  DirecTV  unit,  News  Corp.  becomes  a  vertically  integrated  competitor  to  all  of  its  MVPD 
 programming  purchasers  in  every  MVPD  market.  To  the  degree  that  the  transaction  increases  News  Corp.  s  incentive  and  ability  to  act  anticompetitively,  it  does  so  with  respect  to  all  of  its  MVPD 
 customer/  competitors. 
 b.  Video  Programming 


 179  Application  at  44-  45. 
 180  Intelsat  Comments  at  2-  5. 
 181  Intelsat  Comments  at  6. 
 182  NRTC  Petition  at  2.  NRTC  states  that  we  should  consider  whether  the  relevant  geographic  market  should  be 
 divided  into  three  categories  markets  not  served  by  any  cable  system;  markets  served  by  low  capacity  cable  systems;  and  markets  served  by  high-  capacity  cable  systems.  Id.  NRTC  states  that  this  determination  also  should 


 factor  in  the  number  of  households  and  subscribers  in  each  market.  Id.  Although  NRTC  characterizes  its  concern  as  a  definition  of  the  relevant  geographic  market,  it  actually  proposes  that  we  consider  whether  to  vary  our 
 analysis  according  to  the  types  of  products  available  in  different  markets,  which  concerns  product  markets,  rather  than  geographic  markets. 


 183  CFA  Reply  Comments  at  6-  8.  CFA  asserts  that  DBS  is  more  expensive  than  cable,  and  that  customers  often 
 subscribe  in  order  to  receive  high-  end  services  not  provided  (until  the  recent  advent  of  digital  cable)  on  cable  systems,  such  as  high-  end  sports  packages,  out  of  region  programming,  and  foreign  language  channels.  Id. 


 184  CFA  Reply  Comments  at  7-  8. 
 185  CFA  Reply  Comments  at  2,  4-  5,  Attachment  at  2. 
 186  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20609    115.  The  United  States  Department  of  Justice  (  DOJ) 
 identified  this  same  MVPD  product  market  in  its  complaint  against  the  proposed  merger  of  EchoStar  and  DIRECTV.  DOJ/  EchoStar  Complaint    24. 
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 54.  Background.  Companies  that  own  cable  or  broadcast  programming  networks  both  produce  their  own  programming  and  acquire  programming  produced  by  others.  Companies  that  own  cable 
 networks  package  and  sell  this  programming  as  a  network  or  networks  to  MVPD  providers  for  distribution  to  consumers.  187  Companies  that  own  broadcast  networks  distribute  their  programming 
 through  owned  or  affiliated  television  broadcast  stations.  Television  broadcast  stations  affiliated  with  broadcast  networks  combine  network  programming  with  their  own  locally  originated  programming  and/  or 
 programming  secured  from  other  sources  to  provide  over-  the-  air  service.  188  They  redistribute  such  programming  via  cable  or  DBS  pursuant  to  an  election  of  mandatory  carriage  or  a  retransmission  consent 
 agreement.  189  MVPDs  combine  cable  programming  networks  or  broadcast  television  signals  with  transport  on  their  cable,  satellite,  or  wireless  distribution  networks  to  provide  delivered  multichannel 
 video  services  to  subscribers.  190 
 55.  Participants  in  the  market  for  video  programming  consist  of  entities  of  various  sizes,  from  unaffiliated  packagers  that  own  one  programming  network  to  large  corporations  with  multiple  24-  hour 


 networks.  191  Cable  programming  networks  sell  programming  to  MVPDs  that  range  in  size  from  small  mom  and  pop  cable  systems  offering  tens  of  channels  of  programming  to  fewer  than  a  hundred 
 subscribers,  to  large  vertically  integrated  cable  companies  offering  hundreds  of  channels  of  programming  to  tens  of  millions  of  subscribers  in  dozens  of  states.  Owners  of  cable  programming  networks  are 
 compensated  in  part  through  license  fees  that  are  based  on  the  number  of  subscribers  served  by  the  MVPD.  These  license  fees  are  negotiated  based  on  rate  cards  192  that  specify  a  top  fee,  but  substantial 
 discounts  are  negotiated  based  on  the  number  of  MVPD  subscribers  and  on  other  factors,  such  as  placement  of  the  network  on  a  particular  programming  tier.  193  Most  cable  programming  networks  and 
 MVPDs  also  derive  revenue  by  selling  advertising  time  during  the  programming.  194 
 56.  Commercial  local  broadcast  television  stations  elect  to  be  carried  on  MVPDs  pursuant  to  must-  carry  status  or  retransmission  consent  on  a  schedule  that  tracks  the  three-  year  statutory  must-carry/ 


 retransmission  consent  election  timeframe.  195  The  broadcast  stations  most  likely  to  elect  must  carry 


 187  Comcast-  AT&  T  Order,  17  FCC  Rcd  23258    34. 
 188  Review  Of  The  Commission's  Regulations  Governing  Television  Broadcasting,  10  FCC  Rcd  3524  at  3545    48 
 (1995). 
 189  We  have  described  the  must-  carry/  retransmission  consent  provisions  of  the  Act  and  our  rules  at  Section  V.  B., 
 supra. 
 190  Comcast-  AT&  T  Order,  17  FCC  Rcd  at  23258    34;  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20653    248. 


 191  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20654    249  (citing  Implementation  of  Section  11  of  the  Cable 
 Television  Consumer  Protection  and  Competition  Act  of  1992,  16  FCC  Rcd  17312,  17321-  22  (2001)  (  Ownership  Further  Notice)). 


 192  Such  rate  cards  are  not  publicly  available. 
 193  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20654  17  FCC  Rcd  20654    249  (citing  Ownership  Further  Notice,  16 
 FCC  Rcd  at  17322). 
 194  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20654    249  (citing  Ownership  Further  Notice,  16  FCC  Rcd  at  17322). 


 195  Broadcasters  must  elect  either  must-  carry  or  retransmission  consent  every  three  years  (except  for  the  very  first 
 DBS  carriage  election  cycle,  which  commenced  in  2001  and  ends  on  Dec.  31,  2005).  See  47  C.  F.  R.    76.64(  f),  (continued.) 
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 are  those  that  are  not  affiliated  with  one  of  the  four  major  networks  and  those  in  smaller  markets.  196  Those  stations  that  elect  retransmission  consent  negotiate  the  terms  of  carriage  with  MVPDs.  Owners  of 
 local  television  broadcast  stations  that  elect  retransmission  consent  are  generally  compensated  by  one  or  more  of  the  following:  (1)  retransmission  consent  fees;  (2)  cable  advertising  availabilities;  and/  or  (3) 
 where  the  station  owner  also  owns  cable  programming  networks,  it  may  grant  retransmission  consent  rights  in  exchange  for  carriage  of  its  cable  programming  networks  by  the  MVPD.  197  At  least  one  study 
 finds  that  historically,  most  broadcasters  have  opted  for  (or  settled  for)  in-  kind  compensation  from  cable  operators  in  exchange  for  retransmission  consent  the  right  to  program  a  channel  on  the  cable  system  or 
 some  cable  advertising  availabilities.  198  Because  they  are  generally  retransmitted  in  their  entirety,  broadcast  television  station  signals  already  contain  advertising  sold  by  the  station  owner,  the  network 
 with  which  the  station  is  affiliated  (if  any),  or  other  program  suppliers.  199 
 57.  Some  cable  programming  networks  offer  programming  of  broad  interest  and  depend  on  a  large,  nationwide  audience  for  profitability;  others  also  seek  large  nationwide  audiences  but  offer  content 


 that  is  more  focused  in  subject;  yet  others  still  seek  nationwide  distribution,  but  offer  narrowly  tailored  programming,  focusing  on  a  niche  within  a  niche.  200  Some  cable  programming  networks  do  not  seek  a 
 national  audience  but  are  regional  or  even  local  in  scope,  including  RSNs  and  local  or  regional  news  networks.  Some  cable  programming  networks  likely  can  survive  with  distribution  to  a  few  million 
 subscribers  within  a  certain  region,  while  others  may  need  nationwide  distribution  in  order  to  remain  viable.  201 


 58.  Positions  of  the  Parties.  Applicants  describe  the  video  programming  market  as  national  or  international  in  geographic  scope,  although  they  do  not  offer  a  product  market  definition.  202  EchoStar 
 complains  that  Applicants  postulate  a  single  product  market  encompassing  all  programming  but  offer  no  economic  evidence  to  support  this  view.  203  Commenters  identify  and  discuss  various  segments  of  the 
 (Continued  from  previous  page)  76.66(  c).  The  most  recent  cable  carriage  election  was  made  on  Oct.  1,  2002,  became  effective  on  Jan.  1,  2003, 
 and  the  election  cycle  will  end  on  Dec.  31,  2005.  47  C.  F.  R.    76.64(  f). 
 196  Carriage  of  the  Transmissions  of  Digital  Television  Broadcast  Stations,  13  FCC  Rcd  15092  at  15110  (1998) 
 (  DTV  Must-  Carry  Notice).  As  we  explain  above,  electing  must-  carry  entitles  a  station  to  carriage  but  not  compensation.  See  Section  V.  B.  3.,  supra. 


 197  FCC,  OPP  Working  Paper  #37,  Broadcast  Television:  Survivor  in  a  Sea  of  Competition  at  29. 
 198  FCC,  OPP  Working  Paper  #37,  Broadcast  Television:  Survivor  in  a  Sea  of  Competition  at  29. 
 199  FCC,  OPP  Working  Paper  #37,  Broadcast  Television:  Survivor  in  a  Sea  of  Competition  at  11  (broadcast 
 networks,  broadcast  stations,  and  syndicators  sell  time  to  national  advertisers;  broadcast  stations  also  sell  time  to  local  advertisers). 


 200  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20654    250  (citing  Ownership  Further  Notice,  16  FCC  Rcd  at  17322- 
 23.  Examples  of  the  first  type  of  programming  include  TNT  and  USA;  examples  of  the  second  type  include  ESPN  for  sports  and  CNN  for  news;  and  examples  of  this  third  type  of  programming  include  Discovery  Health,  the  Golf 


 Network,  and  Home  and  Garden.  Id. 
 201  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20654    250  (citing  Ownership  Further  Notice,  16  FCC  Rcd  at  17323); 
 Comcast-  AT&  T  Order,  17  FCC  Rcd  at  23258    35. 
 202  Application  at  45. 


 203  EchoStar  Petition  at  31. 
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 video  programming  market,  including  broadcast  network  programming  and  RSN  programming.  Several  commenters  contend  that  News  Corp.  has  market  power  in  some  or  all  segments  of  the  video 
 programming  market.  204 
 59.  Discussion.  The  record  in  this  proceeding  makes  clear  that  the  video  programming  networks  offered  to  MVPDs  differ  significantly  in  their  characteristics,  focus  and  subject  matter.  Thus,  for 


 example,  there  are  over-  the-  air  broadcast  stations,  national  cable  networks,  including  news,  entertainment  and  hobby  networks,  as  well  as  various  regional  networks,  including,  in  particular,  regional  sports 
 networks.  The  record  further  makes  clear  that  these  various  networks  are  not  viewed  as  perfect  substitutes  by  either  MVPDs  or  their  subscribers.  205  Accordingly,  we  find  that  the  market(  s)  that  include 
 video  programming  networks  are  classic  differentiated  product  markets.  206  As  discussed  in  greater  detail  below,  the  record  further  indicates  that  at  least  a  certain  proportion  of  MVPD  subscribers  view  certain 
 types  of  programming  as  so  critical  or  desirable  that  they  are  willing  to  change  MVPD  providers  in  order  to  gain  or  retain  access  to  that  programming.  207 


 60.  Nothing  in  the  record  suggests  a  need  for  us  to  define  rigorously  all  the  possible  relevant  product  markets  for  video  programming  networks;  the  primary  alleged  harm  involves  a  unilateral  vertical 
 restraint,  and  there  is  sufficient  data  in  the  record  for  us  to  analyze  the  potential  profitability  of  News  Corp.  's  engaging  in  such  temporary  foreclosure  with  respect  to  certain  of  its  video  programming  products. 
 For  purposes  of  this  analysis,  we  will  separate  the  video  programming  products  offered  by  News  Corp.  into  three  broad  categories:  (1)  national  and  non-  sports  regional  cable  programming  networks;  208  (2) 
 regional  sports  cable  networks;  209  and  (3)  local  broadcast  television  programming.  210 


 204  See,  e.  g.,  EchoStar  Petition  at  31  (News  Corp.  has  market  power  in  a  number  of  relevant  segments  of  the 
 programming  market,  including  regional  sports  and  [broadcast]  network  programming);  CFA  at  4-  5  (  One  of  News  Corp./  Foxs  most  important  weapons  is  significant  control  over  regional  and  national  sports 


 programming.);  Cablevision  Comments  at  12-  17  (discussing  News  Corp.  s  market  power  in  the  broadcast  network  programming  segment). 


 205  See,  e.  g.,  JCC  Comments  at  20,  36  (discussing  lack  of  substitutes  for  Fox  broadcast  programming  and  sports 
 programming). 
 206  Differentiated  products  are  products  whose  characteristics  differ  and  which  are  viewed  as  imperfect  substitutes 
 by  consumers.  See  Dennis  W.  Carlton  &  Jeffrey  M.  Perloff,  MODERN  INDUSTRIAL  ORGANIZATION  281  (2d  ed.  1991). 


 207  [REDACTED]  Technical  Appendix  Sections  A.  3  and  B.  3,  [REDACTED]. 
 208  The  national  and  non-  sports  regional  cable  programming  network  category  includes  11  nationally  distributed 
 networks  owned  and  managed  by  News  Corp.  These  networks  are  Fox  News  Channel,  FX,  National  Geographic  Channel,  Speed  Channel,  Fox  Movie  Channel,  Fox  Sports  World,  Fox  Sports  en  Espanol,  Fox  Sports  Digital 


 Networks,  TV  Guide  Channel,  TV  Games  Channel,  and  Fuel. 
 209  The  regional  sports  cable  networks  category  includes  the  12  RSNs  owned  and  managed  by  News  Corp.  These 
 networks  are  Fox  Sports  Net  Arizona,  Fox  Sports  Net  Detroit,  Fox  Sports  Net  Midwest,  Fox  Sports  Net  North,  Fox  Sports  Net  Northwest,  Fox  Sports  Net  Pittsburgh,  Fox  Sports  Net  Rocky  Mountain,  Fox  Sports  Net 


 Southwest,  Fox  Sports  Net  West,  Fox  Sports  Net  West  2,  and  the  Sunshine  Network. 
 210  The  broadcast  television  programming  category  includes  the  35  O&  Os  and  the  171  Fox  affiliates.  See  supra 
 n.  171. 
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 61.  Other  Relevant  Product  Markets.  News  Corp.  also  owns  substantial  interests  in  firms  selling  programming-  related  technologies.  As  with  the  video  programming  products,  there  is  no  need  to  engage 
 in  a  rigorous  market  definition  in  order  to  analyze  the  potential  anticompetitive  effects  of  the  transaction.  Rather,  we  will  separate  these  products  into  three  programming-  related  technologies  product  categories: 
 (1)  electronic  and  interactive  program  guides;  (2)  interactive  television  programming  and  associated  technologies;  and  (3)  conditional  access  technologies.  We  address  issues  arising  from  News  Corp.  s 
 acquisition  of  an  interest  in  PanAmSat  in  Section  VI.  C.  4.  e.,  infra. 
 2.  Relevant  Geographic  Markets 
 a.  MVPD  Services 
 62.  Applicants  assert  that  the  Commission  has  consistently  found  that  the  geographic  scope  of  the  multichannel  video  programming  distribution  market  is  local  or  regional.  211  Cablevision  and  EchoStar 


 assert  that  the  proper  geographic  market  is  local.  212  In  the  past,  we  have  concluded  that  the  relevant  geographic  market  for  MVPD  services  is  local  213  because  consumers  make  decisions  based  on  the  MVPD 
 choices  available  to  them  at  their  residences  and  are  unlikely  to  change  residences  to  avoid  a  small  but  significant  increase  in  the  price  of  MVPD  service.  In  order  to  simplify  the  analysis,  we  have  aggregated 
 consumers  that  face  the  same  choice  in  MVPD  products  into  a  larger,  more  manageable  relevant  geographic  market.  We  find  it  appropriate  to  continue  this  approach  here.  Because  the  major  MVPD 
 competitors  in  many  cases  are  the  local  cable  company  and  the  two  DBS  providers,  we  find  that  the  franchise  area  of  the  local  cable  company  can  be  used  as  the  relevant  geographic  market  for  purposes  of 
 this  analysis. 
 b.  Video  Programming 
 63.  Applicants  assert  that  the  geographic  scope  of  the  video  programming  market  is  national  and  possibly  international.  The  Applicants  do  not  divide  the  video  programming  market  into  different  types 


 of  video  programming,  and  therefore  do  not  provide  geographic  definitions  for  different  types  of  programming.  EchoStar  critiques  Applicants  failure  to  identify  or  analyze  various  segments  of  the  video 
 programming  market.  214  Although  they  do  not  provide  detailed  descriptions  of  how  the  geographic  markets  for  each  programming  segment  should  be  defined  for  purposes  of  our  analysis,  MVPD 
 commenters  identify  at  least  two  segments  of  the  video  programming  market  that  have  a  geographic  scope  narrower  than  the  national  or  international  scope  of  the  programming  market  described  by  Applicants. 
 MVPDs  contend  that  access  to  one  or  both  of  these  segments  is  critical  to  their  ability  to  compete  within  the  geographic  areas  where  such  programming  is  popular:  broadcast  network  programming  delivered  by 
 free  over-  the-  air  television  stations  (within  a  Nielsen  Designated  Market  Area  (  DMA));  and  RSN  programming  (within  the  region  where  the  sporting  events  featured  on  the  RSN  take  place).  215 


 211  Application  at  44  (citing  2002  Video  Competition  Report,  17  FCC  Rcd  at  26852-  55;  Comcast-  AT&  T  Order,  17 
 FCC  Rcd  at  23282;  MCIT,  16  FCC  Rcd  at  21613-  14). 
 212  Cablevision  Comments  at  12,  n.  22;  EchoStar  Petition  at  12. 


 213  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20610    119;  Comcast-  AT&  T  Order,  17  FCC  Rcd  at  23282    90. 
 214  EchoStar  Petition  at  31. 
 215  See,  e.  g.,  JCC  at  41-  43  (discussing  the  effects  of  temporary  withholding  of  RSN  programming  from  cable 
 operators  on  the  relevant  system  and  competitors  serving  the  same  region);  EchoStar  at  15  (discussing  the  effects  (continued.) 
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 64.  Because  video  programming  is  a  non-  rival  good  216  that  can  be  distributed  large  distances  at  relatively  little  cost,  the  relevant  geographic  market  potentially  could  be  the  national  or  international  in 
 scope.  As  a  practical  matter,  however,  demand  for  particular  types  of  programming  varies  from  region  to  region.  Moreover,  owners  of  programming  have  the  right  to  decide  in  which  areas  to  license  the 
 programming  for  distribution,  and  they  generally  limit  distribution  to  smaller  areas  where  the  demand  for  programming  is  greatest.  Given  this,  we  find  it  reasonable  to  approximate  the  relevant  geographic  market 
 for  video  programming  by  looking  to  the  area  in  which  the  program  owner  is  licensing  the  programming. 
 65.  Applying  this  approach,  we  conclude  that  in  the  case  of  broadcast  television  programming,  it  is  reasonable  to  use  DMAs  to  define  the  relevant  geographic  market  for  each  individual  broadcast  station. 


 Contracts  between  broadcast  stations  and  the  providers  of  programming,  as  well  as  FCC  regulations  and  broadcasting  technology,  limit  the  extent  to  which  broadcast  station  signals  can  be  distributed  outside  of 
 the  assigned  market  area.  217  DMAs  are  widely  used  to  represent  these  areas,  so  we  will  use  them  as  reasonable  approximations. 


 66.  With  respect  to  national  cable  programming  networks  the  relevant  geographic  market  is  at  least  national  in  scope.  These  networks  are  generally  licensed  to  MVPDs  nationwide,  and  in  some  cases 
 they  are  licensed  internationally.  The  widespread  demand  that  is  evidenced  for  such  programming  and  the  corresponding  widespread  distribution  suggests  that  the  relevant  geographic  market  is  at  least  national 
 in  scope.  In  contrast,  with  respect  to  RSNs,  we  conclude,  as  we  did  in  the  Comcast-  AT&  T  merger,  that  the  relevant  geographic  market  for  RSNs  is  regional.  218  In  general,  contracts  between  sports  teams  and 
 RSNs  limit  the  distribution  of  the  content  to  a  specific  "distribution  footprint,"  usually  the  area  in  which  there  is  significant  demand  for  the  specific  teams  whose  games  are  being  transmitted.  219  MVPD 
 subscribers  outside  the  footprint  thus  are  unable  to  view  many  of  the  sporting  events  that  are  among  the  most  popular  programming  offered  by  RSNs.  We  thus  find  it  reasonable  to  define  the  relevant 
 geographic  market  as  the  "distribution  footprint"  established  by  the  owner  of  the  programming. 
 67.  Finally,  we  find  that  the  geographic  market  for  programming-  related  technologies  is  at  least  national  in  scope,  and  possibly  international.  These  technologies  are  composed  of  software  and  hardware 


 components  which  have  high  value  and  low  transportation  costs  and  can  be  easily  delivered  and  are  delivered  to  many  widespread  locations  in  the  U.  S.  and  the  world. 


 VI.  ANALYSIS  OF  POTENTIAL  HARMS  IN  THE  RELEVANT  MARKETS 
 A.  Introduction 
 (Continued  from  previous  page)  on  EchoStars  penetration  rates  in  DMAs  where  it  lacked  access  to  the  signals  of  all  four  major  network  affiliated 


 stations). 
 216  A  good  is  said  to  be  "non-  rival"  if  one  individual's  consumption  of  the  good  does  not  diminish  the  supply  of  the 
 good  to  other  individuals.  See  THE  MIT  DICTIONARY  OF  MODERN  ECONOMICS  308  (David  W.  Pearce,  ed.,  4  th  ed.  1999). 


 217  Broadcasters  have  the  right  to  prevent  cable  operators  from  carrying  certain  programming  from  the  signals  of 
 broadcast  stations  from  other  markets.  See  47  C.  F.  R.    76.92-  76.95  (network  non-  duplication  rule);  47  C.  F.  R.    76.101-  76.110  (syndicated  exclusivity  rule). 


 218  Comcast-  AT&  T  Order,  17  FCC  Rcd  at  23267    59. 
 219  DirecTV,  Blackout  Information  at  http://  www.  directvsports.  com/  Blackout_  Info/  (visited  Oct.  3,  2003). 
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 68.  In  this  section,  we  consider  the  potential  harms  of  the  proposed  transaction  in  the  relevant  product  markets  that  include  video  programming  and  MVPD  services.  In  particular,  we  consider 
 whether,  as  a  result  of  the  transaction,  the  post-  transaction  entity  will  have  an  increased  incentive  and  ability  to  engage  in  anticompetitive  foreclosure  strategies  with  respect  to  national  and  non-  sports  regional 
 cable  programming  networks,  regional  sports  cable  programming  networks,  broadcast  television  station  signals,  programming-  related  technologies,  including  electronic  and  interactive  programming  guides  and 
 fixed  satellite  services.  Where  we  find  that  the  proposed  transaction  is  likely  to  result  in  anticompetitive  harms,  we  also  analyze  and  explain  our  decision  to  impose  conditions  that  are  narrowly  targeted  to 
 address  those  harms. 
 69.  Transactions  involving  the  acquisition  of  a  full  or  partial  interest  in  another  company  may  give  rise  to  concerns  regarding  horizontal  concentration  and/  or  vertical  integration,  depending  on  the 


 lines  of  business  engaged  in  by  the  two  firms.  A  transaction  is  said  to  be  horizontal  when  the  firms  in  the  transaction  sell  products  that  are  in  the  same  relevant  markets  and  are  therefore  viewed  as  reasonable 
 substitutes  by  purchasers  of  the  products.  Horizontal  transactions  are  of  antitrust  concern  because  they  eliminate  competition  between  the  firms  and  increase  concentration  in  the  relevant  markets.  220  The 
 reduction  in  overall  competition  in  the  relevant  markets  may  lead  to  substantial  increases  in  prices  paid  by  purchasers  of  products  in  the  markets. 


 70.  Vertical  transactions  raise  slightly  different  competitive  concerns.  At  the  outset,  it  is  important  to  note  that  antitrust  law  and  economic  analysis  have  viewed  vertical  transactions  more 
 favorably  in  part  because  vertical  mergers,  standing  alone,  do  not  increase  concentration  in  either  the  upstream  or  downstream  markets.  221  In  addition,  vertical  mergers  may  generate  significant  efficiencies. 
 For  example,  a  vertical  transaction  may  produce  a  more  efficient  organization  form,  which  can  reduce  transaction  costs,  limit  free-  riding  by  internalizing  incentives,  and  take  advantage  of  technological 
 economies.  222  Where  both  the  upstream  and  downstream  firms  possess  enough  market  power  to  set  prices  above  marginal  costs,  a  vertical  transaction  also  may  reduce  prices  through  the  elimination  of  this  double 
 marginalization.  The  reduction  occurs  because  the  integrated  firm,  in  determining  the  costs  of  producing  the  downstream  product  and  consequently  the  final  price  charged  to  consumers,  will  consider  the  real 
 economic  cost  of  the  input  rather  than  the  higher  price  (including  the  upstream  profit  margin)  previously  charged  by  the  unintegrated  upstream  firm.  223 


 220  4  AREEDA  &  HOVEMKAMP  5-  6;  see  also  1  ABA  ANTITRUST  SECTION,  ANTITRUST  LAW  DEVELOPMENTS  317  (4  th 
 ed.  1997)  (hereinafter  ANTITRUST  LAW  DEVELOPMENTS);  KIP  VISCUSI,  JOHN  M.  VERNON  &  JOSEPH  E.  HARRINGTON,  JR.,  ECONOMICS  OF  REGULATION  AND  ANTITRUST  192  (3d  ed.  2000)  (  VISCUSI  ET  AL.). 


 221  In  the  simple  case  where  there  are  two  levels  of  production,  an  upstream  market  is  a  market  for  inputs,  while  a 
 downstream  market  is  a  market  for  end-  user  outputs.  We  will  sometimes  refer  to  the  upstream  and  downstream  markets  as  the  input  and  output  markets. 


 222  VISCUSI  ET  AL.  at  219-  221;  Michael  H.  Riordan  and  Steven  Salop,  Evaluating  Vertical  Mergers:  A  Post-Chicago 
 Approach,  63  ANTITRUST  L.  J.  513,  523-  26  (1995)  (  Riordan  &  Salop). 
 223  Double  marginalization  occurs  when  an  upstream  firm  sells  an  input  to  a  downstream  firm  at  a  price  that 
 exceeds  marginal  cost,  and  the  downstream  firm  then  sells  its  product  in  the  downstream  market  at  a  price  that  exceeds  its  marginal  cost.  The  margin  charged  by  the  upstream  firm  increases  the  marginal  cost  of  the 


 downstream  firm,  which  results  in  a  higher  end-  user  price  than  would  occur  if  the  input  had  been  priced  at  marginal  cost.  Vertical  integration  in  theory  reduces  the  problem  of  double  marginalization  because  the  integrated 
 firm,  in  determining  the  uniform  price  at  which  it  will  sell  the  downstream  product,  will  consider  the  real  economic  cost  of  producing  the  input.  Because  vertical  integration  effectively  reduces  the  marginal  cost  of  the 
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 71.  Nevertheless,  as  discussed  in  greater  detail  below,  vertical  transactions  also  have  the  potential  for  anticompetitive  effects.  In  particular,  a  vertically  integrated  firm  that  competes  both  in  an  upstream 
 input  market  and  a  downstream  output  market,  such  as  post-  transaction  News  Corp.,  may  have  the  incentive  and  ability  to:  (1)  discriminate  against  particular  rivals  in  either  the  upstream  or  downstream 
 markets  (e.  g.,  by  foreclosing  rivals  from  inputs  or  customers);  or  (2)  raise  the  costs  to  rivals  generally  in  either  of  the  markets.  We  first  address  potential  horizontal  harms  and  then  analyze,  with  respect  to  each 
 affected  product  and  geographic  market,  potential  vertical  harms  arising  from  the  proposed  transaction. 
 B.  Potential  Horizontal  Harms 
 72.  Positions  of  the  Parties.  Applicants  explain  that  the  satellite  assets  of  Hughes  and  its  subsidiaries  in  the  United  States  complement  the  non-  U.  S.  satellite  interests  of  News  Corp.,  completing 


 News  Corp.  s  global  network  for  the  distribution  of  programming  without  creating  any  domestic  overlap  of  satellite  assets  or  MVPD  participation.  224  In  contrast  with  the  failed  EchoStar-  DirecTV  merger,  this 
 transaction,  Applicants  aver,  does  not  involve  the  affiliation  of  two  domestic  MVPD  systems.  225  Similarly,  they  allege  that  there  is  no  effect  on  potential  competition  because  News  Corp.  has  no  plans  for 
 independently  entering  the  domestic  distribution  market.  226  Following  the  transaction,  DirecTV  will  continue  to  face  competition  from  cable  operators  in  most  local  markets,  as  well  as  continued  competition 
 from  EchoStar  in  every  local  market.  227 
 73.  Nor  does  the  proposed  transaction  create  horizontal  overlap  in  programming,  according  to  the  Applicants,  because  DirecTV  does  not  produce  or  own  any  programming  (beyond  Hughes  5%  passive 


 equity  interest  in  the  Hallmark  Channel),  and  has  no  plans  to  expand  its  programming  interests.  228  For  its  part,  News  Corp.  will  continue  to  face  competition  in  regional,  national,  and  international  programming 
 markets  from  the  same  array  of  well-  established  and  well-  funded  companies  with  which  it  currently  competes.  229 


 74.  Cablevision  disagrees,  claiming  that  the  combination  presents  horizontal  concentration  issues  because  it  adds  to  News  Corp.  s  existing  means  of  distributing  Fox  content  television  broadcast  stations. 
 Cablevision  asserts  that  by  giving  News  Corp.  a  new  outlet  for  its  content  in  addition  to  the  broadcast  station  outlets  it  already  controls,  the  transaction  will  provide  News  Corp.  with  greater  opportunities  to 


 (Continued  from  previous  page)  input,  it  is  likely  to  result  in  the  integrated  firm's  setting  a  lower  price  for  the  downstream  product,  which  will 
 benefit  consumers.  The  extent  of  this  benefit,  however,  will  depend  crucially  on  the  elasticity  of  demand  for  the  downstream  product.  The  less  elastic  is  the  demand,  the  greater  is  the  benefit.  JEAN  TIROLE,  THE  THEORY  OF 
 INDUSTRIAL  ORGANIZATION  (MIT  Press  1988)  at  174-  75;  Riordan  &  Salop,  63  ANTITRUST  L.  J.  at  526-  27. 
 224  Application  at  45. 


 225  Application  at  45. 
 226  Application  at  46. 
 227  Application  at  46. 
 228  Application  at  46. 
 229  Applicants  note  that  Liberty  indirectly  holds  a  controlling  interest  in  one  Ka-  band  satellite  system.  Liberty  will 
 not,  however,  have  control  over  any  Commission  license  held  by  any  Hughes  subsidiary  following  the  transaction.  Application  at  46. 
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 leverage  the  power  of  its  broad  range  of  media  assets.  230  Cablevision  asserts  that,  for  example,  in  the  New  York  DMA,  where  it  competes  with  DirecTV,  post-  transaction  News  Corp.  will  have  three  platforms 
 to  distribute  its  content  two  broadcast  licenses,  and  a  DBS  platform.  231  Cablevision  states  that  if  Fox  denies  retransmission  consent  for  its  broadcast  stations  to  Cablevision,  it  will  still  have  two  different 
 platforms  over-  the-  air  and  DBS  for  reaping  a  return  on  this  must  have  programming,  while  Cablevision  will  lack  any  means  of  providing  this  content  to  its  subscribers.  232 


 75.  Discussion.  We  agree  with  the  Applicants  that  the  instant  transaction  does  not  present  horizontal  concentration  issues.  The  Commission  has  previously  held  that  broadcast  television  is  not 
 sufficiently  substitutable  with  the  services  provided  by  MVPDs  to  constrain  attempted  MVPD  price  increases,  and  hence,  is  not  in  the  same  relevant  product  market.  233  The  concern  Cablevision  raises 
 access  to  Fox  network  programming  delivered  via  television  broadcast  stations  for  Cablevisions  MVPD  product  demonstrates  that  broadcast  signals  are  an  input  used  to  produce  a  downstream  product 
 MVPD  service.  We  view  access  to  News  Corp.  s  broadcast  signals  not  as  a  horizontal  concentration  issue,  but  as  a  vertical  integration  issue,  and  we  address  it  as  part  of  our  potential  vertical  harms 
 discussion  below.  We  therefore  conclude  that,  because  the  Applicants  do  not  offer  the  same  products  or  services,  the  transaction  does  not  present  horizontal  combination  issues.  234 


 C.  Potential  Vertical  Harms 
 1.  Background 
 76.  Background.  In  this  section,  we  consider  the  potential  vertical  harms  of  the  proposed  transaction.  In  particular,  we  consider  whether,  as  a  result  of  the  transaction,  Applicants  will  have  an 


 increased  incentive  and  ability  to  engage  in  anticompetitive  foreclosure  strategies  with  respect  to  national  and  non-  sports  regional  cable  programming  networks,  regional  sports  cable  programming  networks, 
 broadcast  television  station  signals,  programming-  related  technologies,  including  electronic  and  interactive  programming  guides  and  fixed  satellite  services. 


 77.  Applicants  present  a  series  of  economic  and  legal  arguments  in  support  of  their  overall  claim 
 230  Cablevision  Comments  at  12,  18-  19. 
 231  Cablevision  Comments  at  18-  19. 
 232  Cablevision  Comments  at  18-  19. 
 233  See  Competition,  Rate  Deregulation,  and  the  Commissions  Policies  Relating  to  the  Provision  of  Cable 
 Television  Services,  5  FCC  Rcd  4962    69  (1990);  EchoStar-  DirecTV  HDO    109-  115. 
 234  The  vertical  nature  of  the  proposed  transaction  distinguishes  it  from  the  proposed  merger  of  EchoStar-DirecTV. 
 The  proposed  acquisition  of  DirecTV  by  EchoStar  presented  a  classic  example  of  a  horizontal  merger,  in  which  the  only  two  existing  providers  of  high-  powered,  full-  CONUS  DBS  service  sought  to  merge.  After 


 careful  analysis  of  the  record,  we  declined  to  approve  the  requested  license  transfers  and  designated  the  proposed  transaction  for  hearing  on  analysis  of  the  record  indicating  that  the  likelihood  of  the  merger  significantly  harming 
 competition  in  the  MVPD  market  outweighed  any  potential  merger-  specific  benefits  alleged  by  the  applicants.  In  that  case,  we  found  that  such  loss  of  competition  in  the  MPVD  market  would  be  likely  to  harm  consumers  by:  (1) 
 eliminating  an  existing  viable  competitor  in  every  market;  (2)  creating  the  potential  for  higher  prices  and  lower  service  quality;  and  (3)  negatively  impacting  future  innovation.  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20615-  16   
 138. 
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 that  the  proposed  transaction  poses  no  competitive  harms  in  the  affected  markets.  In  general,  they  contend  that:  (1)  economic  forces  are  sufficient  to  ensure  that  the  proposed  transaction  will  have  no 
 anticompetitive  effect  in  any  relevant  market;  (2)  neither  News  Corp.  nor  Hughes  has  sufficient  power  in  any  relevant  market  that  would  give  it  the  ability  or  incentive  to  pursue  a  vertical  foreclosure  strategy;  and 
 (3)  even  if  this  were  not  true,  structural  corporate  governance  checks  and  regulatory  constraints,  including  their  proposed  program  access  conditions,  would  safeguard  against  such  conduct.  235  Most  commenters 
 and  opponents  of  the  transaction  argue  that  News  Corp.  will  use  its  control  of  DirecTV  to  disadvantage  its  MVPD  rivals  and  harm  consumers.  236  Commenters  and  opponents  of  the  transaction  assert  that  the 
 transaction  poses  a  significant  likelihood  that  News  Corp.  will  use  its  control  of  Hughes  and  DirecTV  to  disadvantage  its  MVPD  competitors  and  ultimately  harm  consumers  in  several  relevant  product 
 markets.  237  In  particular,  several  opponents  of  the  transaction  contend  that  consumer  demand  for  local  broadcast  television  station  signals  and  regional  sports  network  programming  is  so  strong  as  to  make 
 profitable  a  strategy  of  temporary  vertical  foreclosure  in  order  to  drive  up  prices  for  those  programming  packages.  238 


 78.  With  respect  to  vertical  foreclosure,  which  is  the  main  harm  alleged  in  the  record,  a  vertically  integrated  firm,  as  the  result  of  a  transaction,  may  have  the  incentive  and  ability  (or  an  increased  incentive 
 and  ability)  to  foreclose  downstream  competitors  from  important  inputs.  239  That  is,  where  a  firm  that  has  market  power  in  an  input  market  acquires  a  firm  in  the  downstream  output  market,  the  acquisition  may 
 increase  the  incentive  and  ability  of  the  integrated  firm  to  raise  rivals'  costs  either  by  foreclosing  supply  of  the  input  it  sells  downstream  competitors  or  by  raising  the  price  at  which  it  sells  the  input  to 
 competitors.  240  By  doing  so,  the  integrated  firm  may  be  able  to  increase  its  profits  by  raising  prices  in  the  downstream  market,  or  increasing  its  market  share  in  that  market,  or  both. 


 79.  The  economic  literature  suggests  that  an  integrated  firm  will  engage  in  permanent  foreclosure  only  if  the  present  discounted  value  of  the  increased  profits  it  earns  in  the  downstream  market  as  the  result 
 of  foreclosure  exceeds  the  present  discounted  value  of  the  losses  it  incurs  from  reduced  sales  of  the  input 


 235  Application  at  47-  48;  Applicants  Reply  at  iii-  iv. 
 236  See,  e.  g.,  ACA  Comments  at  7-  23;  Cablevision  Comments  at  8-  30;  CDD  Comments;  CFA  Reply  Comments  at 
 3-  12;  Consumers  Union  Sept  .  23,  2003  Ex  Parte;  EchoStar  Petition  at  11-  39,  58-  67;  JCC  Comments  at  13-  65;  NAB  Comments  at  5-  9,  15-  26;  NRTC  Petition  at  7-  15;  RCN  Comments  at  4-  11;  Pegasus  Comments. 


 237  See,  e.  g.,  ACA  Comments  at  7-  23;  Cablevision  Comments  at  8-  30;  CDD  Comments;  CFA  Reply  Comments  at 
 3-  12;  Consumers  Union  Sept  .  23,  2003  Ex  Parte;  EchoStar  Petition  at  11-  39,  58-  67;  JCC  Comments  at  13-  65;  NAB  Comments  at  5-  9,  15-  26;  NRTC  Petition  at  7-  15;  RCN  Comments  at  4-  11;  Pegasus  Comments. 


 238  See,  e.  g.  EchoStar  Petition  at  22-  24,  30-  32;  JCC  Comments  at  15-  44;  Pegasus  Dec.  16,  2003  Ex  Parte;  RCN 
 Dec.  18,  2003  Ex  Parte. 
 239  A  vertically  integrated  firm  also  may  attempt  to  foreclose  upstream  competitors  from  the  vertically  integrated 
 firm's  downstream  affiliate  in  order  to  reduce  the  competitors'  customer  base.  If  the  downstream  affiliate  had  previously  purchased  significant  amounts  of  inputs  from  other  independent  suppliers,  this  foreclosure  could  raise 


 the  costs  of  upstream  rivals  and  possibly  cause  them  to  exit  the  market.  See,  e.  g.,  Riordan  &  Salop,  63  ANTITRUST  L.  J.  at  519. 


 240  See,  e.  g.,  Riordan  &  Salop,  63  ANTITRUST  L.  J.  at  527-  38.  See  also  Thomas  G.  Krattenmaker  &  Steven  C. 
 Salop,  Anticompetitive  Exclusion:  Raising  Rivals'  Costs  to  Achieve  Power  over  Price,  96  YALE  L.  J.  209,  234-  38  (1986). 
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 in  the  upstream  market.  241  If  an  integrated  firm  calculates  that  permanent  foreclosure  would  be  unprofitable,  it  nevertheless  might  find  it  profitable  to  engage  in  temporary  foreclosure  in  certain  markets. 
 In  markets  exhibiting  consumer  inertia,  242  among  other  things,  temporary  foreclosure  may  be  profitable  even  where  permanent  foreclosure  is  not,  because,  during  the  period  of  foreclosure,  downstream 
 customers  may  switch  to  the  integrated  firm's  downstream  product  and,  due  to  inertia,  then  not  immediately  switch  back  to  the  competitor's  product  once  the  foreclosure  has  ended.  Consumers 
 choosing  an  MVPD  are  subject  to  inertia  and  partial  lock-  in,  because,  among  other  things,  there  are  switching  costs  associated  with  changing  providers  and  some  MVPDs,  including  DirecTV  generally 
 require  one-  year  contracts.  243  Thus,  temporary  foreclosure  may  generate  profits  that  continue  for  a  longer  period  than  the  period  of  upstream  losses  caused  by  the  reduction  in  demand  for  the  input. 


 80.  There  is  an  additional  reason  why  temporary  foreclosure  may  be  profitable.  Specifically,  by  temporarily  foreclosing  supply  of  the  input  to  a  downstream  competitor  or  by  threatening  to  engage  in 
 temporary  foreclosure,  the  integrated  firm  may  improve  its  bargaining  position  so  as  to  be  able  to  extract  a  higher  input  price  from  the  downstream  competitor  than  it  could  have  negotiated  if  it  were  a  non-integrated 
 input  supplier.  In  order  for  an  integrated  firm  successfully  to  employ  temporary  foreclosure  or  the  threat  of  temporary  foreclosure  as  a  strategy  to  increase  its  bargaining  position,  the  foreclosure 
 strategy  must  be  credible.  This  means  that  competitors  must  believe  that  temporary  foreclosure  is  profitable  (whether  or  not  it  actually  is)  244  in  order  to  extract  a  higher  input  price.  For  example,  if  the 
 vertically  integrated  firm,  by  temporarily  withholding  an  input  from  a  competitor,  can  cause  the  competitor  to  lose  sufficient  revenue  or  suffer  other  competitive  harms,  the  competitor  might  agree  to  pay 
 a  higher  price  for  the  input,  which  could  lead  to  higher  prices  for  the  output,  thus  injuring  consumers.  Even  if  the  vertically  integrated  firm  suffered  a  loss  in  profits  from  engaging  in  a  specific  instance  of 
 temporary  foreclosure,  it  might  nevertheless  find  it  to  be  a  profitable  strategy  over  the  longer  run.  Specifically,  if  by  temporarily  foreclosing  certain  competitors,  the  vertically  integrated  firm  may  signal  to 
 other  downstream  competitors  its  willingness  to  foreclose,  which  may  cause  other  downstream  competitors  to  agree  to  a  higher  price  without  the  vertically  integrated  firm's  having  to  actually  engage  in 
 repeated  foreclosures.  245  Temporary  foreclosure  may  result  in  a  widespread  increase  in  the  input  price 
 241  See,  e.  g.,  Riordan  &  Salop,  63  ANTITRUST  L.  J.  at  528-  31  (1995). 


 242  More  specifically,  the  market  must  be  one  where  consumer  choice  is  subject  to  some  inertia  and  "lock-  in."  Cf. 
 Roy  Radner,  Viscous  Demand,  112  J.  ECON.  THEORY  189  (2003). 
 243  In  contrast,  temporary  foreclosure  would  not  be  profitable  in  a  market  in  which  consumers  made  frequent  and 
 repeated  purchases  of  a  product  and  could  change  providers  each  time  they  made  a  purchase.  Finally,  we  note  that,  where  customers  make  a  one-  time,  long-  term  commitment,  such  as  by  purchasing  a  long-  lived  durable  good, 


 temporary  foreclosure  resembles  permanent  foreclosure.  A  second  requirement  for  temporary  foreclosure  to  be  profitable  is  that  the  withdrawal  of  the  input  (subject  to  foreclosure)  must  cause  a  change  in  the  characteristics  of 
 the  downstream  product,  such  that  some  customers  will  shift  to  competing  downstream  products. 
 244  Where  downstream  competitors  have  incomplete  information  about  the  integrated  firm's  revenues  and  costs, 
 the  integrated  firm  may  have  an  incentive  to  engage  in  temporary  foreclosure  even  where  it  is  not  profitable,  because  it  will  send  a  signal  to  downstream  purchasers  of  the  input.  See  generally  Janusz  A.  Ordover  &  Garth 


 Saloner,  Predation,  Monopolization,  and  Antitrust  in  1  HANDBOOK  OF  INDUSTRIAL  ORGANIZATION  556-  61  (Richard  Schmalensee  &  Robert  Willig,  eds.  1989). 


 245  The  analysis  of  the  incentives  to  engage  in  temporary  foreclosure  is  similar  to  the  incentive  for  union  to  engage 
 in  the  temporary  withholding  of  labor  in  the  economic  analysis  of  strikes.  See,  e.  g.,  Peter  Cramton  and  Joe  Tracy  Strikes  and  Holdouts  in  Wage  Bargaining:  Theory  and  Data  ,  AMERICAN  ECONOMIC  REVIEW  Vol.  82  at  100-  121 


 (Mar.  1992). 
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 and  thus  upstream  profits  in  the  longer-  run.  In  addition,  if  the  increase  in  the  input  price  affects  the  marginal  cost  of  producing  the  downstream  product,  prices  in  the  downstream  market  will  rise  as  well. 
 81.  The  underlying  purpose  of  temporary  foreclosure  generally  is  to  extract  a  higher  price  for  the  integrated  firm's  upstream  input  and  thus  raise  its  downstream  rivals'  costs.  It  is  recognized  that  this 
 raising  rivals'  costs  strategy  may  take  two  forms.  First,  an  integrated  firm,  if  it  can,  will  generally  seek  to  discriminate  in  the  price  it  charges  downstream  rivals  for  its  upstream  input.  Specifically,  it  will  have  an 
 incentive  to  charge  a  higher  input  price  to  its  downstream  competitors  than  it  charges  itself  or  non-competing  firms  in  ancillary  markets.  246  In  many  cases,  however,  either  legal  or  regulatory  constraints  or 
 market  forces  will  limit  the  ability  of  the  integrated  firm  to  engage  in  price  discrimination. 
 82.  Where  the  downstream  affiliate  is  wholly  owned,  the  integrated  firm  can  always  raise  the  internal  transfer  price  of  an  input  so  that  it  equals  the  price  charged  to  downstream  competitors.  Under 


 these  conditions,  however,  the  increase  in  the  internal  transfer  price  is  not  particularly  meaningful,  since  the  integrated  firm  in  making  business  decisions  will  consider  the  real  economic  cost  of  the  input  and  not 
 its  nominal  transfer  price.  247  Thus,  in  the  case  of  a  wholly  owned  downstream  affiliate,  it  may  be  difficult  to  detect  if  price  discrimination  is  occurring  and  anti-  discrimination  rules  may  not  function  effectively. 


 83.  Where,  as  in  this  case,  the  upstream  input  supplier  holds  only  a  partial  ownership  interest  in  the  downstream  firm,  matters  become  even  more  complicated.  The  Applicants  note  that  corporate  law 
 generally  requires  that  the  transfer  price  not  be  set  in  a  manner  that  disadvantages  the  other  shareholders  of  the  downstream  firm.  248  As  our  discussion  of  corporate  governance  in  the  following  section 
 demonstrates,  the  protections  afforded  by  corporate  law  are  neither  absolute  nor  omniscient.  Even  when  corporate  law  effectively  limits  the  ability  of  the  upstream  firm  to  enter  into  arrangements  that 
 disadvantage  the  minority  shareholders  of  the  downstream  firm,  it  is  equally  true  that  the  upstream  firm  can  circumvent  this  problem  if  it  can  effectively  compensate  the  downstream  firm  and  its  shareholders  for 
 any  increase  in  the  transfer  price  of  the  input.  This  compensation  is  frequently  referred  to  as  a  "side-payment."  249  As  a  result,  the  upstream  firm  will  likely  be  willing  to  incur  any  transaction  costs  associated 
 with  arranging  such  side-  payments  if  the  expected  revenues  from  the  uniform  input  price  increase  exceed  the  expected  transaction  costs  of  arranging  the  requisite  side  payments.  If  the  transaction  costs  associated 
 with  designing  the  compensation  scheme  exceed  the  expected  revenues  from  the  uniform  price  increase,  then  again,  it  will  not  find  it  profitable  to  attempt  such  a  strategy. 


 84.  The  above  discussion  confirms  that  the  program  access  rules  (and  other  non-  discrimination  safeguards)  serve  several  useful  functions  with  respect  to  the  video  programming  subject  to  the  vertically 
 integrated  firms  control.  First,  the  program  access  rules  prohibit  permanent  foreclosure  with  respect  to  all  satellite  cable  programming.  Second,  they  can  prevent  overt  discrimination  in  the  prices  the  integrated 
 firm  charges  for  such  inputs.  Finally,  they  can  also  prevent  uniform  increases  in  satellite  cable 


 246  Cf.  Riordan  &  Salop,  63  ANTITRUST  L.  J.  at  535-  38  (discussing  the  incentive  of  an  integrated  firm  to 
 discriminate  and  charge  higher  prices  to  its  direct  rivals). 
 247  We  ignore  for  purposes  of  this  discussion  other  regulations  that  may  constrain  the  setting  of  transfer  prices. 


 248  In  Section  VI.  C.  2.  we  analyze  the  likelihood  that  internal  controls  and  corporate  law  will  limit  the  ability  of 
 News  Corp.  to  set  transfer  prices  that  disadvantage  the  remaining  Hughes  shareholders. 
 249  See  Daniel  P.  OBrien  and  Steven  C.  Salop,  Competitive  Effects  of  Partial  Ownership:  Financial  Interest  and 
 Corporate  Control,  67  ANTITRUST  L.  J.  581-  582  (2000). 
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 programming  input  prices  where  the  downstream  affiliate  is  partially  owned  and  where  the  cost  of  compensating  the  affiliate  exceeds  the  expected  profits  resulting  from  the  price  increase.  Because,  under 
 the  proposed  transaction,  News  Corp.  will  acquire  only  a  partial  ownership  interest  in  DirecTV,  we  believe  that  our  program  access  rules  and  the  Applicants'  proposed  program  access  commitments  can  help 
 prevent  permanent  foreclosure,  discriminatory  input  price  increases  and,  in  some  cases,  non-discriminatory  uniform  input  price  increases  with  respect  to  satellite  cable  programming  of  general 
 interest.  Conversely,  the  above  discussion  suggests  that  these  safeguards  will  not  prevent  an  upstream  firm  that  partially  owns  the  downstream  affiliate  from  uniformly  raising  the  price  of  its  input  to  both  its 
 downstream  affiliate  and  downstream  competitors  when  it  has  both  the  economic  incentive  and  ability  to  do  so.  Thus,  the  partially  integrated  firm  may  be  able  to  execute  a  uniform  input  price  increase  without 
 running  afoul  of  corporate  law  and  despite  such  non-  discrimination  safeguards  especially  if  it  is  able  to  profitably  arrange  a  mechanism  for  side-  payments  to  occur.  It  would  certainly  be  able  to  execute  such  a 
 uniform  price  increase  for  video  programming  inputs  not  subject  to  such  safeguards  and  for  which  it  has  significant  market  power,  and  may  even  risk  shareholder  litigation  to  do  so. 


 85.  Roadmap  and  Summary  of  Decision.  At  the  outset,  we  note  that  local  MVPD  markets  already  are  highly  concentrated.  250  Changes  in  vertical  relationships  between  a  major  input  and  output  supplier  in 
 such  a  market  can  therefore  have  significant  competitive  effects.  Because  Applicants  have  asserted  corporate  governance  and  related  securities  laws  as  a  global  defense  against  all  potential  forms  of  vertical 
 foreclosure,  we  address  this  matter  at  the  outset  of  our  analysis.  Next,  our  discussion  will  address  each  relevant  product  market  in  turn  and,  with  respect  to  each,  the  defenses  raised  by  Applicants.  For  each 
 relevant  type  of  video  programming  and  programming-  related  technologies,  we  will  examine  whether:  (1)  the  Applicants  possess  market  power  and,  if  so,  (2)  whether  the  transaction  increases  the  Applicants 
 incentive  and  ability  to  gain  from  withholding  a  given  input,  either  permanently  or  temporarily,  which  could  lead  to  increases  in  end  user  prices.  251  For  markets  in  which  we  find  that  Applicants  lack  market 
 power,  we  conclude  that  no  potential  public  interest  harms  will  arise  with  respect  to  that  market.  For  markets  in  which  the  Applicants  have  market  power,  we  will  analyze  whether  the  transaction  increases 
 Applicants  incentive  and  ability  to  withhold  a  given  input.  Based  on  our  review  and  analysis  of  the  record,  we  do  not  agree  with  Applicants  that  the  proposed  transaction  will  result  in  no  public  interest 
 harms  in  any  of  these  areas  absent  appropriate  conditions. 
 86.  Our  review  of  the  record,  using  the  approach  described  above,  demonstrates  that,  with  respect  to  national  and  non-  sports  regional  cable  programming,  the  program  access  rules,  together  with  the 


 Applicants  program  access-  like  commitments  should  adequately  protect  against  permanent  foreclosure  and  overt  price  discrimination.  Further,  there  is  no  evidence  in  the  record  that  significant  numbers  of 
 customers  will  shift  MVPDs  if  such  programming  is  temporarily  withdrawn  from  their  current  MVPD.  This  suggests  that  temporary  foreclosure  will  not  significantly  increase  downstream  profits  of  DirecTV  or 
 that  this  increase  in  profits  will  exceed  the  sum  of  the  loss  in  revenues  in  the  upstream  market  plus  the  transaction  costs  associated  with  arranging  compensation  for  DirecTV's  other  shareholders.  As  a  result, 


 250  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20616    139. 
 251  We  analyze  the  incentive  and  ability  of  the  Applicants  to  engage  in  a  temporary  or  permanent  foreclosure 
 strategy  using  the  following  methodology,  described  in  detail  in  the  Technical  Appendix:  (1)  estimate  the  incentives  to  engage  in  foreclosure  by  calculating  the  number  of  consumers  that  must  shift  to  the  Applicants 


 downstream  product  in  order  to  compensate  for  the  revenues  that  would  be  lost  due  to  foreclosure;  (2)  consider  whether  the  necessary  numbers  of  consumers  are  likely  to  switch  to  the  Applicants  downstream  product  in  the 
 event  of  foreclosure. 
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 we  find  it  unlikely  that  News  Corp.  will  have  an  incentive  to  temporarily  withhold  such  programming  in  an  effort  to  secure  a  uniform  increase  in  the  price  of  its  general  interest  cable  programming. 
 87.  In  contrast,  we  find  substantial  evidence  in  the  record  that  a  temporary  withdrawal  of  regional  sports  programming  networks  and  local  broadcast  television  station  signals  would  cause  a  significant 
 number  of  customers  to  shift  from  their  current  MVPD,  which  is  subject  to  the  foreclosure,  to  DirecTV.  In  addition,  there  is  significant  evidence  in  the  record  that  the  per-  subscriber  profits  generated  by  each 
 additional  DirecTV  subscriber  are  sufficiently  large  that  the  increased  downstream  revenues  resulting  from  temporary  foreclosure  are  likely  to  exceed  the  costs  of  foreclosure  in  many  local  markets. 
 Accordingly,  we  find  that,  as  a  result  of  the  transaction,  the  increased  profits  accruing  to  DirecTV  and  News  Corp.  as  a  result  of  the  temporary  withdrawal  of  regional  sports  programming  and  broadcast  signals 
 will  give  News  Corp.  an  increased  incentive  to  adopt  a  strategy  of  temporary  foreclosure  in  order  to  uniformly  raise  the  price  of  its  broadcast  television  and  regional  sports  programming  and/  or  obtain  other 
 carriage  concessions.  News  Corp.  s  post-  transaction  ability  to  act  anti-  competitively  to  increase  its  competitors  programming  costs  is  greater  than  it  would  otherwise  be  due  to  News  Corp.  s  post-transaction 
 ability  to  off-  set  temporary  revenue  losses  arising  from  foreclosure  with  increased  profits  accruing  to  DirecTV  as  subscribers  drop  the  affected  MVPD  and  subscribe  to  News  Corps  affiliated 
 MVPD.  This  increased  ability  and  incentive  to  seek  and  obtain  higher  programming  rates  through  unilateral  temporary  foreclosure  would  likely  lead  to  higher  prices  to  MVPD  consumers  than  would 
 otherwise  occur  and  thereby  harm  the  public  interest.  To  avoid  public  interest  harms  that  would  result  from  such  conduct,  we  impose  several  conditions  to  maintain  the  balance  of  bargaining  power  between 
 News  Corp.  and  other  MVPDs  at  roughly  pre-  transaction  levels. 
 88.  In  this  section,  we  first  address  Applicants  claims  with  respect  to  the  role  of  corporate  governance  and  associated  legal  requirements  in  protecting  against  anticompetitive  harms.  We  next 


 examine,  sequentially,  concerns  raised  in  the  record  with  respect  to  the  potential  for  Applicants  to  discriminate  against  or  foreclose  access  to  unaffiliated  programming  on  the  DirecTV  platform  and  their 
 potential  for  discrimination  against  or  foreclosure  of  unaffiliated  rivals  in  the  video  programming  and  MPVD  markets,  as  appropriate,  with  respect  to  access  to  Applicants:  (a)  national  and  non-  sports 
 regional  cable  programming  networks;  (b)  regional  sports  cable  programming  networks;  (c)  local  broadcast  television  stations  signals;  (d)  programming-  related  technologies;  and  (e)  fixed  satellite 
 services. 
 2.  Role  of  Corporate  Governance 
 89.  Background.  Applicants  allege  that  corporate  governance  and  related  legal  requirements  will  protect  against  all  forms  of  vertical  foreclosure  alleged  in  the  record  and  will  guard  against  harmful  self-dealing 


 within  the  vertically  integrated  entity.  252  With  respect  to  the  latter,  and  in  order  to  avoid  a  charge  that  they  might  engage  in  discriminatory  conduct  against  other  MVPDs,  News  Corp.  and  Hughes  have 
 hypothesized  that  News  Corp.  could  employ  a  strategy  of  raising  its  programming  prices  to  DirecTV  which  would  then  set  a  benchmark  that  other  MVPDs  would  have  to  accept  or  lose  the  right  to  carry 
 News  Corp.  programming.  253  To  counter  this  hypothesis  the  Applicants  state  that,  among  other  things, 


 252  Application  at  58,  Applicants  Reply  at  53. 
 253  Application  at  58. 
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 they  intend  to  use  the  Audit  Committee  to  review  related-  party  contracts,  and  that  the  Audit  Committee,  in  its  sole  discretion,  will  ensure  that  such  contracts  are  on  an  arms  length  basis.  254 
 90.  All  publicly-  traded  corporations  are  required  to  have  an  audit  committee  comprised  of  at  least  three  independent  directors.  255  The  proposed  Hughes  Amended  and  Restated  By-  Laws  that  will  come 
 into  effect  upon  consummation  of  the  transaction  confirm  that  the  Audit  Committee  will  .  .  .  have  the  sole  authority  to  consider  and  pass  upon  any  Related  Party  Transaction.  .  .  256 


 91.  Positions  of  the  Parties.  Some  commenters  question  the  effectiveness  of  the  Applicants  proposal.  CDD  suggests  that  the  so-  called  independent  directors  will,  in  fact,  not  be  independent, 
 pointing  out  that  the  initial  nominations  for  such  directors  include  persons  that  have  longstanding  relationships  with  Mr.  Murdoch  or  News  Corp.  257  JCC  contends  that  the  Applicants  purported  reliance  on 
 the  Sarbanes-  Oxley  Act  258  as  providing  a  level  of  protection  is  misplaced.  They  allege  that  there  is  nothing  in  Sarbanes-  Oxley  that  would  prevent  a  controlling  stockholder  from  exerting  undue  influence 
 over  the  company  that  it  controls.  259  They  further  suggest  that  the  Audit  Committee  will  not  have  the  necessary  expertise  to  be  able  to  understand  fully  complicated  programming  contracts  to  ensure  that  the 
 prices  are  the  same  as  an  arms  length  transaction.  JCC  also  suggest  that  News  Corp.  has  offered  no  indication  as  to  how  the  Audit  Committee  will  function  or  when  related-  party  contracts  will  be  subject  to 
 review.  260  They  conclude  that,  as  a  practical  matter,  independent  directors  are  likely  to  be  dominated  and  defer  to  the  controlling  stockholder  and  that  to  resist  the  controlling  stockholder  could  result  in  a  loss  of  a 
 board  seat.  261 
 92.  Applicants  respond  that  the  GM  stockholders  would  not  affirmatively  vote  to  approve  the  transaction  if  the  commenters  allegations  were  true.  Applicants  argue  that  the  claimed  vagueness  of  the 


 By-  Laws  is  actually  a  strength,  as  the  Audit  Committee  will  have  the  flexibility  to  respond  to  changing  conditions  and  areas  of  concern  that  could  not  have  been  predicted  when  the  By-  Laws  were  adopted.  262 
 Responding  to  allegations  that  the  Audit  Committee  lacks  the  expertise  to  properly  review  related-  party  contracts,  the  Applicants  assert  that  the  Audit  Committee  can  retain  experts,  counsel  and  consultants  to 
 assist  it  with  its  task.  263  They  further  note  that,  as  a  public  company,  Hughes  will  be  subject  to  extensive 
 254  Application  at  59. 


 255  17  C.  F.  R.    240.10A-  3,  New  York  Stock  Exchange  Rules  (the  NYSE  Rules)    303A.  06  &  07. 
 256  Proposed  Hughes  Amended  and  Restated  By-  Laws,  Article  III,  3(  d)  filed  with  the  SEC  on  June  5,  2003.  A 
 Related  Party  Transaction  is  defined  as  one  that  encompasses  transactions  between  Hughes,  on  the  one  hand,  and  News  Corp.  or  its  subsidiaries,  on  the  other  hand. 


 257  CDD  Petition  at  item  #5. 
 258  Sarbanes-  Oxley  Act  of  2002,  107  Pub.  L.  No.  204,  116  Stat.  745,  is  a  wide  ranging  corporate  governance  and 
 accounting  reform  law. 
 259  JCC  at  59. 


 260  JCC  at  62. 
 261  JCC  at  62-  3  (citing  to  Stout  Aff.). 
 262  Applicants  Reply  at  55. 
 263  Applicants  Reply  at  56. 
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 disclosure  obligations  under  federal  securities  laws,  including  disclosure  requirements  relating  to  related-party  contracts.  264  Finally,  they  contend  that  Hughes  non-  controlling  shareholders  will  be  able  to  bring 
 derivative  shareholder  suits  against  the  company  if  self-  dealing  is  suspected;  that  covenants  contained  in  certain  of  Hughes  debt  agreements  require  that  a  related-  party  transaction  be  on  an  arms  length  basis; 
 and  that  certain  transactions,  in  addition,  require  an  independent  fairness  opinion  from  an  outside  financial  advisor.  265 


 93.  Discussion.  Applicants  contend  that,  because  the  Audit  Committee  will  have  the  sole  power  to  pass  upon  related-  party  contracts,  any  attempt  by  News  Corp.  or  its  programming  subsidiaries  to 
 compel  Hughes  to  accept  anything  other  than  an  entirely  fair  contract  for  the  carriage  of  Fox  programming  would  be  unsuccessful.  This  in  turn  would  result  in  the  protection  of  both  the  non-controlling 
 shareholders  of  Hughes  and,  ultimately,  protecting  Hughes  consumers  from  higher  prices.  266  The  NYSE  Rules  state  that  an  audit  committee  must  consist  of  at  least  three  directors  each  of  whom  must 
 be  independent.  267  As  set  forth  in  the  NYSE  Rules,  an  audit  committees  responsibility  is  to  select  and  oversee  the  companys  outside  auditors.  268  In  the  case  of  Hughes,  however,  the  Audit  Committee  will  be 
 asked  to  undertake  the  additional  function  of  passing  on  related-  party  contracts.  Neither  the  NYSE  Rules  nor  Hughes  proposed  By-  Laws  state  the  qualifications  necessary  for  an  Audit  Committee  member  to 
 fulfill  that  function.  Although  there  is  no  requirement  that  the  member  have  any  special  expertise  or  even  knowledge  of  programming  contracts,  the  Applicants  claim  that  this  does  not  matter  as  the  Audit 
 Committee  will  be  allowed  to  hire  experts  in  order  to  assist  it.  We  remain  concerned,  however,  that,  if  the  Audit  Committee  members  do  not  have  a  good  understanding  of  complicated  programming  contracts, 
 they  might  not  be  aware  when  issues  arise  that  require  an  experts  attention.  269 


 264  Applicants  Reply  at  56. 
 265  Applicants  Reply  at  57-  58. 
 266  Application  at  58-  59.  It  should  be  noted  that  Hughes  is  a  Delaware  corporation  and  is  therefore  subject  to  the 
 General  Corporation  Law  of  the  State,  56  Del.  Laws,  c.  50  (  DGCL).  Under  section  144  of  the  DGCL,  a  contract  between  a  corporation  and  another  corporation  that  share  one  or  more  officers  or  directors  in  common  is  not  void  or 


 voidable  solely  due  to  that  fact,  provided  that  the  contract  is  fair  as  to  the  corporation  as  of  the  time  it  is  authorized,  approved  or  ratified  by  the  board  of  directors,  a  committee  or  the  shareholders  (  144(  a)  DGCL)  Thus,  while  the 
 DGCL  does  not  require  a  contract  between  related-  parties  to  be  approved,  it  would  be  a  reasonable  thing  for  a  corporation  to  do  as  it  provides  a  level  of  protection  for  the  corporation  should  the  contract  be  challenged.  In  a 
 similar  fashion,  the  Applicants  have  stated  that  the  Audit  Committee  will  have  the  sole  power  to  pass  on  a  related-party  contract.  As  with  the  DCGL,  the  Audit  Committee  may  give  its  approval  either  before  or  after  the  fact 
 (By-  Laws,  Article  III  3  (d)).  At  bottom,  therefore,  it  appears  that  the  Applicants  are  offering  only  to  comply  with  a  discretionary  provision  of  the  DGCL  that  would  be  prudent  for  them  to  follow  in  any  event. 


 267  To  be  independent,  inter  alia,  the  board  of  directors  must  affirmatively  determine  that  the  director  has  no 
 material  relationship  with  the  listed  company  (either  directly  or  as  a  partner,  shareholder  or  officer  of  an  organization  that  has  a  relationship  with  the  company).  NYSE  Rules    303A.  02. 


 268  NYSE  Rules    303A.  07. 
 269  The  Applicants  point  out  that  covenants  in  a  loan  agreement  and  public  debt  documents  require  a  fairness 
 opinion  to  be  obtained  concerning  related-  party  contracts  in  excess  of  $100  million.  See  Applicants  Reply  at  58.  Accordingly,  the  Applicants  assert  that  the  Commission  should  rely  on  these  checks  to  assuage  any  concerns  that 


 it  may  have.  If  the  Applicants  had  included  such  provisions  in  the  proposed  By-  Laws  we  might  have  more  confidence  in  their  assertions.  The  credit  facility,  on  the  other  hand,  could  be  repaid  the  day  after  closing  and 
 (continued.) 
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 94.  Both  the  Applicants  and  the  JCC  have  provided  affidavits  from  law  professors  explaining  Delaware  law  and  how  the  Audit  Committee  will  or  will  not  function  as  an  independent  reviewer  of 
 related-  party  contracts.  270  The  experts  disagree  about  three  main  issues.  271  The  first  concerns  the  effect  of  judicial  review  of  related-  party  transactions.  The  JCC  expert  asserts  that  independent  director 
 review  and  approval  of  transactions  between  a  controlling  shareholder  and  a  firm.  .  .  cannot  suffice  to  give  a  clean  bill  of  health  to  transactions  that  are  by  their  very  nature  tainted  with  conflict  of  interest.  272 
 The  Applicants  expert  responds  that,  at  the  very  least,  independent  director  review  and  approval  of  a  related-  party  transaction  can  shift  the  burden  of  proof  from  the  company  to  the  stockholder  challenging 
 the  transaction  to  establish  unfairness.  While  we  agree  with  the  Applicants  that  the  effect  of  compliance  with  section  144  of  the  Delaware  General  Corporation  Law  will  be  to  shift  the  burden  of  proof  to  the 
 complaining  shareholder,  we  do  not  find  that  argument  responsive.  Independent  director  approval  is,  in  no  sense,  determinative  of  the  issue  as  a  complaining  stockholder  would  still  be  able  to  file  a  lawsuit  and 
 allege  the  transaction  is  unfair  to  the  company.  The  Applicants  further  attempt  to  counter  the  JCC  argument  is  dealt  with  below. 


 95.  The  second  issue  concerns  the  effectiveness  and  value  of  stockholder  derivative  litigation  as  a  check  on  self-  dealing  transactions.  Shareholder  derivative  litigation  is  brought  on  behalf  of  a  company  by 
 a  non-  controlling  shareholder.  The  Applicants  allege  that,  for  various  reasons,  related-  party  transactions  would  be  easy  to  detect,  and  suspect  transactions  would  be  prosecuted  by  a  vibrant  plaintiffs  bar.  273 
 JCC  argue  that,  if  the  plaintiffs  bar  is  so  vibrant,  it  is  hard  to  see  why  such  frauds  and  violations  still  occur.  274  We  agree  with  the  JCC  on  this  issue.  Not  all  violations  will  be  detected,  even  by  an  alert 
 plaintiffs  bar.  Moreover,  litigation  may  not  be  brought  for  a  variety  of  reasons  that  have  nothing  to  do  with  the  merits  of  the  case.  In  the  final  analysis,  this  Commission,  not  the  private  bar,  is  the  guardian  of 
 the  public  interest  in  these  matters. 
 96.  The  final  and  most  contentious  disagreement  concerns  the  extent  to  which  and  independent  director  is  actually  independent.  The  Applicants  contend  that  Delaware  corporate  law,  the  federal 


 securities  laws,  the  NYSE  Rules,  and  other  federal  statutes  will  ensure  that  independent  directors  will  be  effective  in  reviewing  the  fairness  of  related-  party  contracts  to  Hughes  and  to  all  of  its  shareholders  and 
 thus,  ultimately,  to  the  public.  We  disagree.  As  we  have  already  discussed,  the  Delaware  Law  provides  a 


 (Continued  from  previous  page)  public  debt  is  regularly  retired.  If  this  were  to  happen,  these  checks  on  the  Applicants  behavior  would  be 
 removed,  rendering  the  value  of  such  protections  somewhat  uncertain. 
 270  See  generally,  JCC  Comments  at  Affidavit  of  Lynn  A.  Stout  (  Stout  Aff.);  Applicants  Reply,  Exhibit  C, 
 Affidavit  of  Lawrence  A.  Hamermesh  (  Hamermesh  Aff.);  Letter  from  Christopher  J.  Harvie,  Mintz,  Levin,  Cohn,  Ferris,  Glovsky  and  Popeo,  PC,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Aug.  20,  2003)  (  Joint  Cable 


 Commenters  Aug.  20  Ex  Parte),  Attachment,  Reply  Affidavit  of  Lynn  A.  Stout  (  Stout  Reply);  Letter  from  William  m.  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP,  Gary  M.  Epstein,  Latham  &  Watkins,  and  Richard  E. 
 Wiley,  Wiley  Rein  &  Fielding,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Sept.  10,  2003),  Reply  Declaration  of  Lawrence  A.  Hamermesh  (  Hamermesh  Reply  Decl.). 


 271  Hamermesh  Aff.    6-  11. 
 272  Stout  Aff.    23. 
 273  Hamermesh  Aff.    11. 
 274  Stout  Aff.    15. 
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 safe  harbor  for  companies  entering  into  related-  party  contracts.  275  Further,  although  federal  securities  laws  provide  that  material  contracts  must  be  disclosed,  they  do  not  bar  such  contracts  from  being  entered 
 into  in  the  first  place.  276  On  the  Applicants  own  admission,  the  Sarbanes-  Oxley  Act  does  not  operate  to  protect  consumers  from  alleged  controlling  shareholder  self-  dealing.  277  Finally,  the  NYSE  Rules  set 
 forth  the  requirements  of  an  audit  committee  and  define  who  is  eligible  to  be  a  member  of  the  committee.  As  we  have  already  discussed,  the  requirements  set  forth  in  the  NYSE  Rules  consist  of  matters  relating  to 
 the  companys  outside  auditors,  they  do  not  consist  of  requirements  concerning  related-  party  contract  review. 


 97.  The  NYSE  Rules  also  provide  a  definition  of  an  independent  director.  278  JCC  argue  that,  while  Delaware  law,  the  Sarbanes-  Oxley  Act  and  the  NYSE  Rules  set  forth  requirements  that  are 
 designed  to  ensure  that  independent  directors  are  independent  from  the  firms  management  in  transactions  involving  the  company  and  its  management,  such  provisions  do  not  deal  with  the  situation  presented  by 
 the  instant  transaction,  namely,  the  independent  directors  independence  from  the  companys  controlling  shareholder.  279  Applicants  argue  that  News  Corp.  is  not  a  controlling  shareholder,  with  the  consequence 
 that  News  Corp.  cannot  influence  the  choice  and  election  of  the  independent  directors.  280  Applicants  attempt  to  distinguish  between  Delaware  law,  which  they  assert  presumes  that  shareholders  owning  less 
 than  a  majority  of  a  companys  shares  do  not  control  a  company,  and  Commission  precedent.  281  Applicants  state  that  the  presumption  could  be  overcome  only  if  it  were  supported  by  specific  facts  of 
 record  that  overcome  the  Delaware  law  presumption  against  non-  majority  stockholder  control.  282  We  believe  that  there  is  sufficient  evidence  in  the  record  to  overcome  the  presumption.  Indeed,  Applicants 
 implicitly  concede,  by  having  filed  the  Application  presently  before  us,  that  News  Corp.  will  be  considered  to  have  de  facto  control  of  Hughes  under  Commission  precedent.  283  Accordingly,  we  find  that 
 News  Corp.  s  influence  is  likely  to  be  such  that  an  independent  director  will  be  cautious  before  taking  any  step  that  could  cause  offense  to  News  Corp.  for  fear  that  he  or  she  might  be  ousted. 


 98.  Even  assuming  that  News  Corp.  will  not  control  Hughes  in  a  legal  sense,  it  is  beyond  doubt  that  it  will  have  enormous  influence  over  Hughes.  The  Hughes  board  of  directors  will  consist  of  11 
 individuals;  five  appointed  by  the  Applicants  and  six  independent  directors.  284  Applicants  and  the  JCC 
 275  See  note  266,  supra. 


 276  Hamermesh  Aff.    11. 
 277  Applicants  Jul.  28  Response  at  I.  6. 
 278  See  note  267,  supra. 
 279  Stout  Reply  Aff.    3. 
 280  Hamermesh  Aff.    8(  b);  Hamermesh  Reply  Decl.    3-  5. 
 281  Id. 
 282  Hamermesh  Reply  Decl.    5. 
 283  In  addition,  C.  Carey  on  behalf  of  News  Corp.,  at  a  press  conference  on  April  9,  2003  at  5:  00  p.  m.,  stated  that 
 by  obtaining  34%  of  Hughes  shares  it  will  obtain  effective  control  of  Hughes.  See  Letter  from  William  M.  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP  to  Marlene  H.  Dortch,  Secretary,  FCC  (Nov.  19,  2003),  Transcript  at 


 29. 
 284  Application  at  13. 
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 discuss  at  length  whether  News  Corp.  will  have  the  power  to  replace  or  dismiss  an  independent  director  that  displeases  it.  285  In  order  to  do  so,  News  Corp.  would  need  to  muster  a  majority  of  votes  in  support  of 
 an  appropriate  resolution.  News  Corp.  will  have  only  34%  of  the  votes,  so,  on  the  face  of  it,  News  Corp.  would  need  other  shareholders  to  cast  their  votes  in  favor  of  the  resolution.  We  do  not  think  that  it  is  far-fetched 
 to  suggest  that  a  sufficient  number  of  shareholders  might  follow  the  lead  of  the  largest  single  stockholder  and  vote  the  way  that  News  Corp.  voted. 


 99.  Even  if  our  concern  about  News  Corp.  s  influence  on  the  board  of  directors  is  overstated,  it  is  unlikely  that  related-  party  contracts  will  get  the  necessary  scrutiny  to  unearth  wrongful  self-  dealing.  As  a 
 prominent  corporate  law  treatise  states,  [  t]  he  nominations  for  outside  directors  are  controlled  by  the  nomination  committee  of  existing  directors,  which  may  in  turn  be  controlled  .  .  .  by  outside  directors  who 
 were  selected  by  and  acceptable  to  the  insiders.  Nomination  of  a  person  by  the  official  committee  virtually  insures  his  election  by  the  shareholders.  The  persons  nominated  are  in  fact  often  friends  of  the 
 chief  executive  or  other  insiders  286  The  treatise  further  points  out  that  frequently  independent  directors  are  the  corporations  bankers  or  lawyers  and  have  a  direct  financial  interest  in  their  relationship 
 with  the  corporation.  Such  relationships  are  often  controlled  by  the  chief  executive  and  other  insiders.  287  Along  these  lines,  CDD  claims  that  several  of  the  so-  called  independent  directors  have  long-standing 
 relationships  with  either  Mr.  Murdoch  or  News  Corp.  288 
 100.  We  therefore  conclude  that,  notwithstanding  the  best  intentions  of  the  Applicants  in  assigning  the  task  of  related-  party  contract  review  to  the  Audit  Committee,  a  significant  risk  remains  that 


 unfair  self-  dealing  transactions  may  occur  and  go  uncorrected.  We  also  observe  that  the  principal  purpose  of  an  audit  committee  is  to  protect  shareholders  from  inappropriate  management  conduct  --  its 
 function  is  not  to  protect  consumers.  Thus,  even  if  the  Audit  Committee  performed  its  task  perfectly,  which,  as  we  have  noted,  we  do  not  think  likely,  consumers  would  not  be  protected  from  artificially 
 inflated  prices  that  are  entirely  fair  to  DirecTV  and  its  shareholders  but  are  not  necessarily  so  to  its  customers.  289  We  therefore  discount  the  likelihood  that  corporate  governance,  corporate  law  or  securities 
 laws  in  general  may  be  relied  upon  to  adequately  protect  MVPD  and  video  programming  competitors  from  potential  anti-  competitive  vertical  foreclosure  behavior  on  the  part  of  Applicants. 


 3.  Discrimination  Against  Unaffiliated  Programming 
 (i)  Positions  of  the  Parties 
 101.  Applicants  acknowledge  that  competitive  concerns  could  arise  if  a  transaction  were  to  create  an  entity  with  sufficient  market  power  in  the  distribution  of  programming  that  it  would  have  the 


 incentive  and  ability  to  foreclose  access  to  its  distribution  network  by  refusing  to  buy  programming  that  viewers  desire  from  unaffiliated  programmers.  290  Applicants  assert,  however,  that  DirecTVs  post- 


 285  Stout  Aff.;  Hamermesh  Aff.. 
 286  Clarke,  Corporate  Law    5.4  at  183. 
 287  Id. 
 288  CDD  Petition  at  Issue  #5. 
 289  Consumers  Union  Comments  at  5,  and  Stout  Reply  Aff.    16. 
 290  Application  at  49. 
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 transaction  ability  and  incentive  to  engage  in  such  conduct  is  significantly  constrained  by  DirecTVs  small  share  of  the  MVPD  market.  Applicants  assert  that  DirecTVs  share  of  the  national  MVPD 
 market  13%  is  too  low  for  the  transaction  to  result  in  harm  to  unaffiliated  cable  networks,  291  and  they  note  that,  in  every  local  market,  DirecTV  competes  against  a  dominant  cable  operator,  as  well  as 
 EchoStar.  292  Applicants  maintain  that  the  primary  purchasers  of  video  programming  are  cable  operators,  including  Comcast,  which  alone  controls  29%  of  the  MVPD  market.  293  Applicants  claim  that  it  would  be 
 economically  irrational  for  DirecTV  to  refuse  to  carry  attractive  unaffiliated  programming  in  favor  of  programming  produced  by  its  new  affiliate,  News  Corp.  They  claim  that  it  is  DirecTVs  primary 
 economic  incentive  to  increase  subscribership  by  distributing  the  widest  possible  variety  of  content  to  the  widest  possible  audience,  and  thus  it  has  no  incentive  to  discriminate  against  unaffiliated  content 
 providers,  either  now  or  after  consummation  of  the  transaction.  Nonetheless,  Applicants  state,  if  the  Commission  deems  it  necessary,  News  Corp.  and  Hughes  have  agreed  to  accept  the  following 
 enforceable  undertaking  as  a  condition  of  grant  of  their  Application: 
 Neither  News  Corp.  nor  DirecTV  will  discriminate  against  unaffiliated  programming  services  in  the  selection,  price,  terms  or  conditions  of  carriage.  294 


 With  respect  to  potential  discrimination  against  broadcast  stations,  Applicants  point  to  statutory  mandatory  carriage  requirements,  which  would  prevent  them  from  engaging  in  such  a  strategy,  even  if 
 they  had  the  incentive  to  do  so.  295 
 102.  Several  commenters  contend  that  the  transaction  would  give  DirecTV  the  incentive  and  ability  to  favor  News  Corp.  s  content  and  discriminate  against  competing  cable  networks  and  television 


 broadcast  stations.  296  CFA  asserts  that,  although  Applicants  have  proposed  safeguards  to  ensure  MVPD  access  to  cable  programming,  they  have  proposed  no  safeguards  to  ensure  that  DirecTV  does  not 
 discriminate  against  unaffiliated  programmers.  297  CFA  asserts  that  News  Corp.  also  might  use  its  bargaining  power  to  pressure  other  MVPDs  to  discriminate  against  competing  programming  by  offering 
 MVPDs  reduced  prices  for  its  affiliated  programming.  298  CDD  contends  that,  given  Libertys  significant  investments  in  News  Corp.,  the  transaction  will  give  the  two  programmers  the  incentive  and  ability  to 
 place  competing  program  suppliers  at  a  competitive  disadvantage.  299 
 103.  EchoStar  asserts  that  the  transaction  will  raise  barriers  for  new  entrants  into  the  video 


 291  Application  at  48-  52. 
 292  Application  at  49. 
 293  Application  at  49. 
 294  Application  at  53,  Attachment  G. 
 295  Applicants  Reply  at  63. 
 296  NAB  Comments  at  20-  21;  CFA  Reply  Comments  at  3,  5;  NRTC  Petition  at  14-  15;  EchoStar  Petition  at  39-  40; 
 CDD  Petition  at  3. 
 297  CFA  Reply  Comments  at  3. 


 298  CFA  Reply  Comments  at  3,  5. 
 299  CDD  Petition  at  4. 
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 programming  market  in  two  ways.  First,  EchoStar  contends  that  integration  of  News  Corp.  s  programming  with  DirecTVs  distribution  will  reduce  or  eliminate  DirecTVs  incentives  to  carry  new 
 programming  that  competes  with  News  Corp.  s  programming.  300  EchoStar  also  asserts  that  the  transaction  will  foreclose  an  important  outlet  for  new  entrants,  because  DirecTV  is  currently  the  largest 
 MVPD  that  is  not  affiliated  with  a  programmer,  and  because  DirecTV  offers  a  nationwide  distribution  network  which  allows  niche  programming  to  reach  a  target  audience  that  is  geographically  broad.  301 
 CDD  agrees,  claiming  that  independent  producers,  unaffiliated  motion  picture  studios,  and  syndicators  will  be  competitively  disadvantaged  by  News  Corp.  after  the  transaction.  302  Victory  Sports,  which 
 operates  an  RSN  and  is  not  vertically  integrated  with  an  MVPD,  expresses  concern  that  that  the  vertical  integration  of  DirecTVs  satellite  distribution  platform  and  News  Corp.  s  RSNs  could  discourage  good 
 faith  negotiations  for  fair  market  value  prices  for  independent  RSN  offerings.  303  Similar  concerns  were  expressed  with  respect  to  the  ability  of  Latino-  themed  English  language  and  bilingual  networks  to  gain 
 access  to  DirecTV  by  the  Congressional  Hispanic  Caucus.  304 
 104.  Commenters  contend  that  News  Corp.  s  discrimination  against  unaffiliated  cable  networks  will  harm  the  public  by  reducing  the  diversity  of  programming  available  to  viewers.  NRTC  is 


 particularly  concerned  about  the  transactions  effects  on  viewers  in  rural  areas.  NRTC  asserts  that  if  the  Application  is  approved,  News  Corp.  could  become  an  essential  facility  for  content  developers 
 distribution  of  programming  to  rural  America.  305  According  to  NRTC,  as  one  of  only  two  MVPDs  serving  un-  cabled  rural  areas  and  the  only  such  MVPD  with  programming  holdings,  News  Corp.  could 
 control  the  programming  available  in  rural  areas  by  denying  distribution  to  competing  content  providers.  306  CDD  asserts  that  if  the  transaction  is  approved,  certain  safeguards  must  be  imposed  to 
 ensure  that  unaffiliated  programmers  have  access  to  DirecTVs  platform,  including  requiring  Applicants  to  make  channel  and  related  capacity  available  on  a  non-  discriminatory  basis  to  unaffiliated 
 programmers  that  lack  market  power;  requiring  that  non-  broadcast  local  (commercial  and  non-commercial)  programmers  have  access  to  Applicants  spot-  beam  capacity;  and  requiring  Applicants  to 
 increase  the  amount  of  national  footprint  capacity  available  to  non-  commercial  entities  beyond  what  is  required  by  our  public  interest  obligations  for  DBS  licensees.  307 


 105.  NAB  asserts  that  the  transaction  will  give  DirecTV  the  incentive  and  ability  to 


 300  EchoStar  Petition  at  39. 
 301  EchoStar  Petition  at  39-  40.  See  also  NRTC  Petition  at  14  (asserting  that  competing  content  developers  may 
 need  access  to  the  DirecTV  platform  to  reach  enough  people  to  make  distribution  economically  feasible). 
 302  CDD  Petition  at  3. 


 303  See  Letter  from  Kathleen  M.  H.  Wallman,  counsel  to  Victory  Sports,  LLC,  to  Marlene  H.  Dortch,  Secretary,  FCC 
 (Oct.  17,  2003). 
 304  See  Letter  from  Ciro  Rodriguez,  Chairman,  Congressional  Hispanic  Caucus  to  John  Ashcroft,  U.  S.  Attorney 
 General,  U.  S.  Department  of  Justice,  Michael  K.  Powell,  Chairman,  FCC  and  Commissioners  (Dec.  9,  2003)  at  2. 
 305  NRTC  Petition  at  14. 


 306  NRTC  Petition  at  14. 
 307  CDD  Nov.  7,  2003  Ex  Parte  at  3.  See  also  47  CFR    100.5. 
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 discriminate  against  broadcast  stations  other  than  Fox  O&  Os.  308  NRTC  asserts  that  News  Corp.  will  have  less  economic  incentive  to  deliver  local  signals  in  markets  where  it  does  not  have  an  O&  O  or  an 
 affiliate.  309  NAB  and  NRTC  claim  that  consumers  will  be  harmed  by  the  resulting  reduction  in  programming,  particularly  local  programming  and  programming  available  to  rural  consumers. 
 Commenters  contend  that  News  Corp.  s  discrimination  against  competing  television  broadcast  stations  will  harm  the  public  by  reducing  the  diversity  of  programming  available  to  viewers  and  by  limiting 
 viewer  access  to  local  programming.  310  With  respect  to  the  Applicants  proposed  condition  that  the  merged  entity  will  not  discriminate  against  unaffiliated  programming  vendors  with  respect  to  price, 
 terms,  or  conditions  of  carriage  on  the  DirecTV  platform,  311  NAB  contends  the  proposed  condition  is  inadequate  because  it  does  not  address  potential  discrimination  against  broadcasters,  and  urges  the 
 Commission  to  expand  this  condition  to  prohibit  discrimination  against  broadcast  stations  as  well  as  cable  programmers.  312 


 106.  Applicants  respond  that  these  claims  of  vertical  foreclosure  against  unaffiliated  programmers  are  flawed  because  DirecTV  simply  lacks  a  large  enough  share  of  the  MVPD  market  to 
 foreclose  an  unaffiliated  programmer.  Such  programmers  would  still  be  able  to  sell  to  MVPDs  serving  approximately  87%  of  subscribers  nationwide.  Moreover,  such  a  strategy  would  only  hurt  DirecTV  by 
 reducing  the  attractiveness  of  its  channel  lineup.  DirecTVs  refusal  to  carry  programming  valued  by  consumers,  regardless  of  its  source,  would  only  drive  subscribers  to  competing  MVPDs.  313  Applicants 
 note  that,  even  where  this  issue  has  arisen  in  the  context  of  an  MVPD  with  much  higher  market  share    as  in  the  proposed  EchoStar-  DirecTV  merger,  where  the  combined  market  share  would  have  been  about 
 20%  the  Commission  concluded  that  the  transaction  would  not  create  purchasing  market  power  over  national  or  regional  programmers.  314  Because  the  Commission  has  previously  found  20%  to  be  well 
 below  levels  of  concentration  at  which  the  Commission  has  historically  had  cause  for  concern,  Applicants  argue  DirecTVs  13%  MVPD  market  share  should  be  dispositive.  315 


 (ii)  Discussion  and  Condition 
 107.  Applicants  have  offered  that  neither  News  Corp.  nor  DirecTV  will  discriminate  against  unaffiliated  programming  services  in  the  selection,  price,  terms  or  conditions  of  carriage.  We  conclude 


 that  Applicants  proposed  commitment  to  allow  unaffiliated  programmers  access  to  the  DirecTV  platform  on  nondiscriminatory  terms  and  conditions  adequately  addresses  concerns  raised  regarding  unaffiliated 
 video  programmers  access  to  the  DirecTV  platform.  We  will  therefore  condition  our  grant  of  the 


 308  NAB  Comments  at  20-  24.  NAB  asserts  that  News  Corp.  will  have  the  ability  and  incentive  to  act  as  a 
 gatekeeper  to  the  detriment  of  unaffiliated  content  providers,  including  broadcast  stations.  Id. 
 309  NRTC  Petition  at  15. 


 310  NAB  Comments  at  20-  24;  NRTC  Petition  at  15. 
 311  NAB  Comments  at  26. 
 312  NAB  Comments  at  26. 
 313  Applicants  Reply  at  49. 
 314  Applicants  Reply  at  49  (citing  EchoStar-  DirecTV  HDO,  17  FCC  at  20655). 
 315  Id. 
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 Application  on  compliance  with  this  access  commitment.  316  At  this  time,  we  will  not  prescribe  standards  of  conduct  pursuant  to  which  DirecTV  must  act  to  comply  with  this  condition  although  we  expect 
 DirecTV  to  act  reasonably  when  dealing  with  unaffiliated  programmers.  We  note  that  Applicants  proposed  commitment  is  not  unlike  the  nondiscrimination  requirement  in  the  Act  and  our  program 
 carriage  rules.  317  Similar  to  our  treatment  of  the  remainder  of  Applicants  proposed  program  access  commitments  in  the  following  section,  we  clarify  that  aggrieved  programmers  and  MVPDs  may  seek 
 relief  for  any  alleged  violations  of  this  condition  by  using  the  existing  enforcement  mechanisms  found  at  Section  76.1003  of  the  Commissions  rules.  318 


 108.  As  to  broadcast  programming,  we  find  it  unlikely  that,  after  the  transaction,  DirecTV  would  discriminate  against  competing  television  broadcast  stations.  The  applicable  statutory  and 
 regulatory  provisions  319  thoroughly  address  satellite  carriage  of  broadcast  television  programming.  In  any  market  in  which  DirecTV  offers  local-  into-  local  service  pursuant  to  the  statutory  copyright  license,  it  is 
 required  to  carry  all  television  broadcast  stations  within  that  local  market  that  request  carriage.  320  The  Commissions  rules  detail  the  technical  terms  of  carriage,  certain  anti-  discrimination  provisions  based  on 
 SHVIA,  and  the  complaint  process  by  which  aggrieved  parties  can  seek  Commission  redress  if  DirecTV  has  failed  to  meet  its  carriage  obligations.  321  Alternatively,  television  broadcast  stations  that  provide 
 retransmission  consent  can  negotiate  the  terms  and  conditions  of  carriage.  322  We  reiterate  that,  under  the  SHVIA,  we  will,  in  reviewing  carriage  complaints  against  any  MVPD,  consider  any  unreasonable  terms 
 or  conditions  or  negotiating  procedures.  323 
 4.  Discrimination  Against  Unaffiliated  MVPDs 
 a.  Access  to  National  and  Non-  Sports  Regional  Cable  Programming  Networks 
 (i)  Position  of  Parties 
 109.  News  Corp.  has  interests  in  several  satellite  cable  programming  networks,  including 


 316  See  Appendix  F. 
 317  We  note  that  Applicants  proposed  condition  is  not  unlike  the  nondiscrimination  requirement  in  the  Act  and 
 our  program  carriage  rules.  See  47  U.  S.  C.    536(  a)(  3);  47  C.  F.  R.    76.1301(  c). 
 318  See  47  C.  F.  R.    76.1003. 


 319  See,  e.  g.,  Satellite  Home  Viewer  Improvement  Act  of  1999,  PL  106-  113,  113  Stat.  1501,  Appendix  I  (1999). 
 320  47  C.  F.  R.    76.66(  b)(  1). 
 321  See  47  C.  F.  R.    76.66(  i)  (channel  position);  47  C.  F.  R.    76.66(  j)  (manner  of  carriage)  47  C.  F.  R.    76.66(  m) 
 (remedies). 
 322  47  C.  F.  R.    76.65. 


 323  Implementation  of  the  Satellite  Home  Viewer  Improvement  Act  of  1999:  Retransmission  Consent  Issues,  16 
 FCC  Rcd  1918,  1928  (2000).  In  addition,  as  discussed  in  Section  VI.  C.  4.  c.,  below,  we  extend  the  good  faith  and  non-  exclusivity  provisions  of  SHVIA  as  a  condition  of  license  transfer  approval  for  so  long  as  the  program  access 


 rules  are  also  in  effect. 
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 national  programming  networks  offering  sports,  news,  or  general  entertainment,  324  and  regional  programming  networks  that  do  not  offer  sports.  325  Applicants  acknowledge  that  a  vertical  relationship 
 could  lead  to  anti-  competitive  results  in  the  distribution  market  if  a  programmer  discriminated  against  or  refused  to  sell  to  unaffiliated  MVPDs  in  order  to  gain  competitive  advantage  for  its  affiliated  MVPD. 
 Applicants  claim,  however,  that  any  such  concern  would  be  extremely  attenuated  in  this  case  for  five  principal  reasons:  (1)  News  Corp.  has  no  market  power  in  the  sale  of  video  programming  that  would 
 enable  it  to  carry  out  such  a  strategy;  (2)  it  would  be  commercially  irrational  for  News  Corp.  and  DirecTV  to  attempt  foreclosure;  (3)  the  program  access  rules  prohibit  News  Corp.  from  engaging  in  such 
 discriminatory  conduct;  (4)  the  parties  are  willing  to  accept  a  series  of  program  access-  like  undertakings  that  will  remain  enforceable  even  if  News  Corp.  ceases  to  be  subject  to  the  Commissions  program  access 
 rules;  and  (5)  vertical  foreclosure  strategies  that  involve  News  Corp.  attempting  to  force  its  sophisticated  partners,  including  Hughes  and  the  various  co-  owners  of  many  News  Corp.  programming  networks,  to 
 act  against  their  self-  interests,  would  not  work  because  such  self-  dealing  behavior  is  adequately  protected  against  by  existing  corporate  governance  and  legal  requirements.  326 


 110.  Applicants  maintain  that  News  Corps  affiliates  combined  share  of  the  programming  market  is  too  small  for  News  Corp.  to  be  able  to  exercise  any  type  of  market  power.  They  cite  prior 
 Commission  findings  that  the  programming  supply  market  is  extremely  competitive,  with  the  growth  rate  of  new  programmers  outpacing  the  growth  of  new  channels  on  MVPD  systems,  327  and  they  state  that 
 News  Corp.  s  share  of  national  video  programming  services  is  relatively  small  (3.9%,  or  10  of  257  services  listed  in  the  2002  Video  Competition  Report).  Similarly,  News  Corp.  holds  an  interest  in  only  32 
 of  339  (9.4%)  of  the  national  and  regional  services  listed,  and  its  interest  in  12  of  the  22  regional  services  is  a  non-  controlling  minority  interest.  328  News  Corp.  claims  that,  under  these  circumstances,  it  lacks  the 
 ability,  either  now  or  after  the  transaction  closes,  to  harm  DirecTVs  rivals. 
 111.  Furthermore,  Applicants  claim  that  News  Corp.  lacks  the  incentive  to  do  so,  because  a  programmers  interests  are  in  securing  the  widest  possible  dissemination  of  its  programming  in  order  to 


 maximize  the  value  of  those  assets    a  value  based  on  its  ability  to  generate  advertising  revenue  and  per-subscriber  fees.  Affiliation  with  DirecTV  would  not  change  this,  according  to  Applicants,  because  News 
 Corp.  would  have  to  forgo  programming  sales  to  the  remaining  87%  of  the  MVPD  market  if  it  were  to  engage  in  foreclosure  strategies.  Moreover,  to  the  extent  News  Corp.  denies  unaffiliated  MVPDs  access 
 to  its  programming,  it  gains  only  a  fraction  of  any  benefits  generated  for  DirecTV  (because  of  its  minority 


 324  The  following  is  a  list  of  national  programming  networks  affiliated  with  News  Corp.  (News  Corp.  s  ownership 
 share  appears  in  parentheses  only  if  it  is  less  than  100%):  Fox  News  Channel;  FX;  National  Geographic  Channel  (66  2/  3%;  remaining  33  1/  3%  National  Geographic  Society);  Speed  Channel;  Fox  Movie  Channel;  Fox  Sports 


 World;  Fox  Sports  en  Espanol  (37.8%;  remaining  62%  Liberty  (10.6%)  and  Hicks  Muse  (51.6%));  Fox  Sports  Digital  Networks;  TV  Guide  Channel  (42.9%  indirectly  owned  through  Gemstar,  which  owns  100%);  TV  Games 
 Network  (42.9%  indirectly  owned  through  Gemstar,  which  owns  100%).  See  Application  at  Attachment  F. 
 325  The  following  is  a  list  of  non-  sports  regional  programming  networks  affiliated  with  News  Corp.  News  Corp. 
 holds  a  40%  interest  in  each  network,  while  the  remaining  interest  is  held  by  Rainbow:  MSG  Metro  Guide;  MSG  Metro  Learning;  MSG  Traffic  and  Weather.  See  Application  at  Attachment  F. 


 326  Application  at  54;  Reply  at  59. 
 327  Application  at  54,  (citing  Cable  Horizontal  Order,  14  FCC  Rcd  at  19104). 
 328  Application  at  55. 
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 interest  in  Hughes),  while  it  incurs  most  of  the  costs  (through  its  82%  interest  in  FEG).  329 
 112.  Applicants  attempt  to  rebut  allegations  that  News  Corp.  could  raise  prices  for  its  programming  to  supra-  competitive  levels  for  all  MVPDs  by  forcing  DirecTV  to  accept  such  supra-competitive 


 rates  to  use  as  a  benchmark  that  other  MVPDs  must  either  also  accept  or  face  the  loss  of  News  Corp.  programming.  In  addition  to  Applicants  argument  that  corporate  governance  will  guard 
 against  such  behavior,  discussed  in  Section  VI.  C.  2,  supra,  they  also  contend  that  such  benchmarking  should  not  be  a  concern  for  at  least  two  other  reasons:  (1)  News  Corp.  lacks  the  requisite  market  power  to 
 raise  programming  prices;  and  (2)  the  Commission  has  consistently  found  that  its  program  access  rules  are  sufficient  protection  against  potential  abuse  in  other  transactions  involving  vertically  integrated 
 MVPDs. 
 113.  Applicants  concede  that  all  of  News  Corp.  s  national  and  regional  satellite  cable  programming  networks  are  already  subject  to  the  Commissions  program  access  rules  due  to  Libertys 


 approximately  17.6%  interest  in  News  Corp.,  and,  in  some  cases,  direct  interests  in  those  networks  held  by  Liberty  or  another  cable  operator,  and  will  continue  to  be  if  the  proposed  transaction  is  completed.  330 
 They  also  acknowledge  that  the  program  access  rules  would  not  apply  to  all  of  Foxs  national  satellite  cable  programming  if  Liberty  Media  divests  its  interest  in  News  Corp.  or  sells  its  cable  systems. 
 Similarly,  for  the  jointly-  owned,  regional  networks  to  fall  outside  of  the  program  access  rules,  the  joint  owner  cable  operators  also  would  have  to  divest  their  interests  for  this  programming.  331  Nonetheless,  as  a 
 condition  of  approval,  News  Corp.  offers  to  continue  to  be  bound  by  the  program  access  rules  applicable  to  satellite  cable  program  vendors  should  any  or  all  of  its  programming  otherwise  fall  outside  of  the 
 Commissions  program  access  jurisdiction.  332  News  Corp.  submits  that  it  will  not  offer  any  of  its  existing  or  future  programming  services  on  an  exclusive  basis  to  any  MVPD  and  will  continue  to  make  such 
 services  available  on  a  non-  exclusive  basis  and  non-  discriminatory  terms  and  conditions.  333 
 114.  In  addition,  Applicants  commit  to  not  entering  into  exclusive  arrangements  for  the  distribution  of  an  affiliated  programming  rights  holders  satellite  cable  programming.  334  Applicants 


 submit  that  this  condition  prevents  them  from  making  exclusive  arrangements  for  Libertys  programming  in  the  event  Liberty  is  no  longer  bound  by  the  program  access  rules  for  as  long  as  Liberty  holds  its 
 attributable  interest  in  News  Corp. 
 115.  Similarly,  Applicants  state  that  they  will  not  unduly  or  improperly  influence  the  decision  of  an  affiliated  programming  rights  holder  to  sell  its  satellite  cable  programming  to  other  MVPDs  or  the 


 prices,  terms  and  conditions  of  such  sale.  This  condition  extends  the  unfair  practices  prohibitions 
 329  Id.  at  57. 
 330  Id.  at  57;  citing  47  C.  F.  R.  76.1000-  76.1003. 
 331  Id.  at  58. 
 332  Id.  An  attributable  ownership  by  a  cable  operator  is  the  triggering  point  for  application  of  the  program  access 
 rules  to  satellite  cable  programming  vendors. 
 333  Id. 


 334  Applicants  define  affiliated  programming  rights  holder  as  either  (1)  a  satellite  cable  programming  vendor  in 
 which  either  Applicant  holds  a  non-  controlling  attributable  interest  (i.  e.  5%  or  greater),  or  (2)  a  satellite  cable  programming  vendor  holding  a  non-  controlling,  attributable  interest  in  either  Applicants.  Id.  at  61. 
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 applicable  to  cable  operators  to  News  Corp.  s  and  DirecTVs  dealings  with  affiliated  programmers.  Applicants  propose  that  these  commitments  apply  for  as  long  as  News  Corp.  has  an  attributable  interest  in 
 DirecTV  and  the  program  access  rules  are  in  effect.  335 
 116.  Commenters  assert  that,  because  of  harms  arising  from  News  Corp.  s  increased  incentive  and  ability  to  withhold  its  broadcast  or  cable  network  programming,  the  Application  should  be  designated 


 for  hearing,  denied,  or,  if  approved,  conditioned  to  prevent  such  harms.  336  EchoStar  contends  that  News  Corp.  has  market  power  in  key  segments  of  the  programming  market  through  its  control  of  Fox  News, 
 Fox  movies,  and  the  non-  news  Fox  Cable  Networks  such  as  FX.  337  EchoStar  and  ACA  state  that  such  content  is  among  the  must  have  programming  that  any  MVPD  needs  if  it  is  to  be  an  effective 
 competitor.  338  EchoStar  also  argues  that  Liberty,  which  has  a  strategic  relationship  to  the  Applicants  and  the  instant  transaction,  controls  other  key  programming  assets,  including  the  several  Discovery  and 
 Encore  channels.  339  ACA  argues  that  transaction-  specific  program  access  problems  include  imposing  more  costly  terms  and  conditions  of  program  access  on  smaller  cable  operators  and  using  volume 
 discounts  to  justify  favorable  pricing  for  DirecTV  and  entering  into  exclusive  programming  arrangements  targeted  at  DirecTVs  smaller  cable  system  competitors.  340  EchoStar  maintains  that  News  Corp.  could 
 bypass  the  program  access  rules  by  delivering  its  programming  to  its  uplink  facility  terrestrially.  341  Commenters  also  question  the  ability  of  the  Audit  Committee  to  monitor  every  term  of  every  agreement 
 with  an  unaffiliated  MVPD  and  do  not  consider  the  committee  as  a  sufficient  guard  against  the  threat  of  unreasonable  terms.  342 


 117.  To  remedy  the  claimed  deficiencies  in  the  conditions  proposed  by  Applicants,  parties  urge  the  Commission  to  adopt  several  revisions  and  additions.  We  will  discuss  revisions  and  additions 
 suggested  to  apply  to  News  Corp.  s  cable  programming  in  general  here,  and  address  these  suggestions  and  proposed  conditions  specific  to  RSN  or  broadcast  programming  separately  below. 


 118.  Several  commenters  urge  applying  the  program  access  rules  permanently  to  News  Corp.  programming  even  if  the  general  application  of  the  rules  terminates.  343  In  addition,  commenters  and 
 opponents  contend  that  neither  the  program  access  rules  nor  the  Applicants  proposed  program  access 


 335  Application  at  Attachment  G. 
 336  ACA  Comments  at  16,  20,  23;  JCC  Comments  at  55-  63;  Cablevision  Comments  at  27-  30;  EchoStar  Petition  at 
 58-  62;  NRTC  Petition  at  20-  22. 
 337  EchoStar  Petition  at  22. 


 338  EchoStar  Petition  at  22;  ACA  Comments  at  16. 
 339  EchoStar  Petition  at  22,  35,  71.  See  also  CDD  Petition  at  4  (describing  investments  by  Liberty  in  News  Corp.). 
 340  See  Letter  from  Christopher  C.  Cinnamon  and  Emily  A.  Denney,  Cinnamon  Mueller,  to  Marlene  H.  Dortch, 
 Secretary,  FCC  (Oct.  17,  2003)  (  ACA  Oct.  17,  2003  Ex  Parte)  at  7. 
 341  EchoStar  Petition  at  59. 


 342  Cablevision  Comments  at  29-  30.;  JCC  Comments  at  59-  63;  Letter  from  Consumers  Union  to  Marlene  H. 
 Dortch,  Secretary,  FCC  (Sept.  23,  2003)  at  5-  6  (  Consumers  Union  Sept.  23,  2003  Ex  Parte). 
 343  ACA  Comments  at  19;  EchoStar  Petition  at  65;  NRTC  Petition  at  21. 
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 commitments  will  adequately  protect  against  potential  harms  arising  from  the  transaction.  344  They  argue  that  the  proposed  program  access  conditions  do  not  prevent  News  Corp.  from  raising  the  price  of 
 programming  above  competitive  levels  by  simply  requiring  DirecTV  to  compensate  News  Corp.  for  its  programming  at  unreasonably  high  prices  with  unreasonably  favorable  terms  of  carriage.  345  These  parties 
 observe  that  such  a  sweetheart  deal  would  then  establish  unreasonable  terms  for  agreements  with  all  other  MVPDs,  without  harm  to  DirecTV  or  News  Corp.,  because  it  is  effectively  compensating  itself.  346 
 Commenters  and  opponents  are  not  convinced  that  the  Applicants  Audit  Committee  will  be  able  to  monitor  every  term  of  every  agreement  with  an  unaffiliated  MVPD  and  do  not  consider  the  committee  as 
 a  sufficient  guard  against  the  threat  of  unreasonable  terms.  347  ACA  contends  that  the  proposed  commitment  does  not  prevent  News  Corp.  from  offering  different  or  more  costly  terms  to  small  cable 
 operators,  because  although  the  commitment  requires  nondiscrimination,  News  Corp.  is  likely  to  offer  the  same  prices/  terms/  conditions  only  to  MVPDs  with  as  many  subscribers  as  DirecTV.  348 


 119.  ACA  urges  the  Commission  to  seek  an  enforceable  commitment  from  Applicants  that  News  Corp.  will  not  use  programming  prices,  terms  and  conditions  to  disadvantage  smaller  market  cable 
 companies.  349  Cablevision  asks  the  Commission  to  revise  the  proposed  program  access  commitment  to  prevent  News  Corp.  from  using  sweetheart  deals  with  DirecTV  as  an  inflated  benchmark  programming 
 price  for  the  industry.  350  RCN  requests  that  the  Commission  clarify  that  the  term  Affiliated  Program  Rights  Holder  refers  not  only  to  existing  programming  affiliates,  but  also  to  programmers  that  become 
 affiliated  with  News  Corp.  or  DirecTV  in  the  future.  351  RCN  also  urges  the  Commission  to  clarify  that,  for  enforcement  purposes,  aggrieved  MVPDs  may  bring  program  access  complaints  against  Applicants 
 using  the  procedures  found  at  Section  76.1003  of  the  Commissions  rules.  352 
 120.  Consumers  Union  explains  that  News  Corp.  s  non-  discrimination  condition  can  be  useful  in  preventing  egregious  competitive  abuses  such  as  selling  Fox  programming  to  DirecTVs  competitors  at 


 prices  that  are  substantially  and  unjustifiably  higher  than  the  price  paid  by  DirecTV.  353  Non- 
 344  ACA  Comments  at  16,  20,  23;  JCC  Comments  at  55-  63;  Cablevision  Comments  at  27-  30;  EchoStar  Petition  at 
 58-  62;  NRTC  Petition  at  20-  22. 
 345  Cablevision  comments  at  27-  28;  EchoStar  Petition  at  23-  24;  NRTC  Petition  at  21;  JCC  Comments  at  59-  63; 
 CFA  Reply  Comments  at  5-  6. 
 346  Cablevision  comments  at  27-  28;  EchoStar  Petition  at  23-  24;  NRTC  Petition  at  21;  JCC  Comments  at  59-  63; 
 CFA  Reply  Comments  at  5. 
 347  Cablevision  Comments  at  29-  30.;  JCC  Comments  at  59-  63;  Letter  from  Consumers  Union  to  Marlene  H.  Dortch, 
 Secretary,  FCC  (Sept.  23,  2003)  (  Consumers  Union  Sept.  23,  2003  Ex  Parte)  at  5-  6. 
 348  ACA  Comments  at  19. 


 349  ACA  Comments  at  20-  21;  ACA  Oct.  17,  2003  Ex  Parte  at  Exhibit  A,  Page  2. 
 350  Cablevision  Comments  at  2,  30;  See  also  NRTC  Petition  at  21;  Consumers  Union  Sept.  23,  2003  Ex  Parte  at  4- 
 5. 
 351  RCN  Comments  at  9;  RCN  Oct.  24,  2003  Ex  Parte  at  7. 


 352  RCN  Comments  at  9-  10.  NRTC  also  urges  the  Commission  to  adopt  enforcement  mechanisms.  NRTC  Petition 
 at  21. 
 353  Consumers  Union  Sept.  23  Ex  Parte  at  5. 
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 discrimination  requirements  alone,  however,  will  not  stop  News  Corp.  from  charging  DirecTV  an  artificially  high  price  for  Fox  programming  and  then  requiring  any  MVPDs  seeking  to  carry  the 
 programming  to  either  pay  a  rate  based  upon  that  same  high  rate  or  allow  DirecTV  to  become  the  major  distributor  of  that  programming  in  the  MVPDs  market,  according  to  Consumers  Union.  354  Consumers 
 Union  recommends  that  the  Commission  impose  a  restriction  similar  to  what  the  Federal  Trade  Commission  (  FTC)  applied  in  the  Time  Warner/  Turner  merger.  In  that  instance,  Consumers  Union 
 avers,  the  FTC  established  a  cable  programming  price  index  mechanism  to  evaluate  whether  the  merging  companies  were  raising  programming  prices  at  a  more  accelerated  pace  than  their  historic  pattern.  355 


 121.  Pegasus  urges  us  to  condition  approval  of  the  Application  on  the  following  requirements  designed  to  supplement  those  proposed  by  Applicants:  (i)  contracts  between  Fox  and  DirecTV  would 
 have  to  be  approved  by  a  majority  of  the  independent  directors  of  DirecTV  and  parent  Hughes;  (ii)  all  contracts  between  Fox  and  DirecTV  would  be  filed  with  the  Commission  and  available  to  the  public;  (iii) 
 the  economic  terms  of  any  contract  between  Fox  and  DirecTV  would  have  to  be  set  at  the  average  of  those  charged  to  Foxs  three  largest,  non-  affiliated  MVPDs.  The  CEO  and  directors  of  Fox,  DirecTV, 
 and  Hughes  would  be  required  to  certify  compliance  with  these  conditions  annually.  Pegasus  asserts  that  these  conditions  should  apply  for  a  period  of  five  years.  356 


 122.  EchoStar  asserts  that  to  the  extent  News  Corp.  s  ownership  interest  in  Hughes  is  anticompetitive,  any  additional  ownership  interest  would  only  exacerbate  the  problem.  Accordingly, 
 EchoStar  urges  the  Commission  to  limit  News  Corp.  s  equity  position  in  Hughes  to  34%.  357  EchoStar  also  urges  the  Commission  to  mandate  independent  programming  authority  at  the  DirecTV  level  by 
 means  of  an  independent  board  of  directors  that  can  withstand  News  Corp.  s  influence,  358  and  suggests  several  other  measures  to  strengthen  the  Applicants  proposed  program  access  conditions.  These  include: 
 prohibiting  satellite  exclusives  of  any  kind  for  News  Corp.  programming;  applying  the  requirement  to  programming  delivered  terrestrially;  extending  the  requirement  to  News  Corp.  s  current  and  future  non-video 
 and  broadband  offerings;  making  the  requirement  permanent;  applying  the  access  condition  to  Libertys  programming  assets;  clarifying  that  the  nondiscrimination  requirement  applies  to  all  non-  price 
 terms;  requiring  News  Corp.  to  offer  all  programming  separately,  at  published  rates  that  are  pre-  approved  by  the  Commission.  359  EchoStar  further  proposes  that  the  Commission  prohibit  the  sharing  of 
 information  between  News  Corp.  s  programming  divisions  and  DirecTV  about  any  programming 
 354  Consumers  Union  Sept.  23  Ex  Parte  at  5. 
 355  CU  Sept.  23  Ex  Parte  at  5-  6  (citing  Agreement  Containing  Consent  Order,  In  the  Matter  of  Time  Warner  Inc., 
 Turner  Broadcasting  System  Inc.,  Tele-  Communications,  Inc.,  and  Liberty  Media  Corporation,  File  No.  961-  004,  Before  the  Federal  Trade  Commission  (Sept.  12,  1996)  at  http://  www.  ftc.  gov/  os/  1996/  09/  timewar.  pdf). 


 356  See  Letter  from  Kathleen  M.  H.  Wallman,  counsel  to  Pegasus  Communications,  to  W.  Kenneth  Ferree,  Chief, 
 Media  Bureau,  FCC  and  Barbara  S.  Esbin,  Associate  Chief,  Media  Bureau,  FCC  at  2-  3,  transmitted  by  letter  from  Kathleen  M.  H.  Wallman  to  Marlene  H.  Dortch,  Secretary,  FCC  (Sept.  30,  2003)  (  Pegasus  Sept.  30,  2003  Ex 


 Parte);  Letter  from  Kathleen  M.  H.  Wallman,  counsel  to  Pegasus  Communications,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Dec.  10,  2003)  (Pegasus  Dec.  10,  2003  Ex  Parte). 


 357  EchoStar  Petition  at  62-  63. 
 358  EchoStar  Petition  at  63. 
 359  Id.  at  64-  66.  ACA,  JCC  and  NRTC  also  support  a  program  access  condition  that  does  not  sunset  with  the 
 program  access  rules.  ACA  Comments  at  19;  JCC  Comments  at  65;  NRTC  Petition  at  20-  21. 
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 negotiation  with  a  competing  MVPD,  subject  to  penalties.  360 
 123.  Applicants  respond  that  they  have  neither  the  incentive  nor  the  ability  to  engage  in  an  anti-  competitive  strategy  for  any  of  their  cable  programming.  361  Applicants  restate  that  DirecTV  and 


 News  Corp.  have  insufficient  power  in  their  respective  markets  to  support  a  strategy  of  withholding  programming  or  abnormally  raising  its  prices,  and  further  the  creation  of  creation  of  an  independent  audit 
 committee  will  prevent  some  of  the  claimed  anti-  competitive  conduct.  Likewise,  Applicants  repeat  that  the  program  access  rules  and  their  proposed  program  access  conditions  are  effective  to  prevent  abuses, 
 and  therefore  there  is  no  need  to  regulate  DirecTV  differently  than  incumbent  cable  operators.  362  Applicants  argue  that  all  of  the  claimed  anti-  competitive  strategies  envisioned  by  the  commenters  assume 
 either  that  the  Commissions  rules  are  totally  ineffectual,  or  that  News  Corp.  would  simply  violate  the  rules  without  being  discovered.  If  there  is  a  systematic  flaw  in  the  rules,  Applicants  contend  the 
 Commission  should  conduct  a  rulemaking  instead  of  imposing  conditions  solely  on  one  party.  363 
 (ii)  Discussion  and  Conditions 
 124.  We  conclude  that  the  program  access  rules,  combined  with  the  Applicants  proposed  program  access  conditions,  will  be  sufficient  to  eliminate  any  potential  for  anti-  competitive  conduct  due 


 to  the  vertical  relationship  between  News  Corps  satellite  cable  programming  networks  and  DirecTVs  distribution  platform  with  respect  to  News  Corp.  s  general  national  and  non-  sports  regional  programming. 
 Accordingly,  we  adopt  the  Applicants  proposed  conditions  and  decline  to  impose  additional  program  access  restrictions  for  this  programming. 


 125.  In  enacting  the  program  access  provisions  of  the  1992  Cable  Act.  Congress  found  that  extensive  vertical  integration  between  cable  operators  and  cable  programming  vendors  created  an 
 imbalance  of  power,  both  between  cable  operators  and  programming  vendors  and  between  incumbent  cable  operators  and  their  multichannel  competitors.  364  Congress  determined  that  this  imbalance  of  power 
 limited  the  development  of  competition  among  MVPDs  and  limited  consumer  choice.  365  Congress  expressed  its  concern  that  unaffiliated  MVPDs  faced  difficulties  gaining  access  to  programming  required 
 to  provide  a  viable  alternative  to  cable.  Congress  found  that  vertically  integrated  program  suppliers  had  the  incentive  and  ability  to  favor  their  affiliated  cable  operators.  366  In  response,  Congress  imposed 
 specific  conduct  restrictions,  including  limits  on  exclusive  contracts,  to  ensure  market  entrants  could  gain  access  to  all  vertically  integrated  satellite  cable  programming.  367  The  competitive  concerns  addressed 
 through  the  program  access  statute  are  similar  to  many  of  the  concerns  expressed  by  commenters 


 360  EchoStar  Petition  at  63-  64. 
 361  Reply  at  48. 
 362  Id.  at  61. 
 363  Id.  at  61. 
 364  1992  Cable  Act    2(  a)(  2). 
 365  Id. 
 366  1992  Cable  Act    2(  a)(  5). 
 367  See  47  U.  S.  C.    548. 
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 regarding  fair  and  non-  discriminatory  access  to  News  Corp.  s  cable  programming.  That  is,  Congress  essentially  recognized  that  access  to  all  vertically  integrated  satellite  cable  programming  on  non-discriminatory 
 terms  and  conditions  was  needed  by  all  MVPDs  and  that  until  competitive  conditions  significantly  altered,  the  Commission  must  enforce  prohibitions  on  unfair  and  discriminatory  terms  and 
 conditions  of  carriage.  Because  Congress  focus  at  the  time  was  the  market  power  in  incumbent  cable  operators,  it  additionally  imposed  a  prohibition  on  exclusive  carriage  arrangements  among  cable  operators 
 and  vertically  integrated  satellite  cable  programming  vendors. 
 126.  In  its  2002  examination  of  whether  to  permit  the  exclusivity  prohibition  to  sunset,  the  Commission  reiterated  that  access  to  vertically  integrated  programming  continues  to  be  necessary  in 


 order  for  competitive  MVPDs  to  remain  viable  in  the  marketplace,  and  that  failure  to  secure  even  a  portion  of  vertically  integrated  programming  would  put  a  nonaffiliated  cable  operator  or  MVPD  at  a 
 significant  disadvantage  vis-  -  vis  a  competitor  with  access  to  such  programming.  368  In  addition,  the  Commission  observed  that  cable  programming    be  it  news,  drama,  sports,  music  or  childrens 
 programming  --  is  not  akin  to  so  many  widgets,  and  explained  that  complete  loss  of  access  to  certain  highly  popular  programming  networks  may  harm  the  foreclosed  unaffiliated  competitor  in  the 
 marketplace.  369  The  Commission  explained,  there  is  a  continuum  of  vertically  integrated  programming,  ranging  from  services  for  which  there  may  be  substitutes  (the  absence  of  which  from  a  rival  MVPDs 
 program  lineup  would  have  little  impact),  to  those  for  which  there  are  imperfect  substitutes,  to  those  for  which  there  are  no  close  substitutes  at  all  (the  absence  of  which  from  a  rival  MVPDs  program  lineup 
 would  have  a  substantial  negative  impact).  370  The  Commission  concluded  that  despite  the  progress  made  in  the  last  ten  years  in  terms  of  the  availability  of  cable  programming,  a  considerable  amount  of 
 vertically  integrated  programming  in  the  marketplace  today  remains  must  have  programming  to  most  MPVD  subscribers,  such  that  the  program  access  rules,  including  particularly  the  exclusivity  provision, 
 continue  to  be  necessary  to  prevent  anticompetitive  foreclosure  of  access  to  all  of  the  vertically  integrated  satellite  programming  covered  by  the  rules.  371  Further,  although  the  Commission  recognized  that  certain 
 programming  services,  such  as  sports  programming,  or  marquee  programming,  such  as  HBO,  may  be  essential  and  for  practical  purposes,  must  haves  for  program  distributors  and  their  subscribers,  it 
 recognized  the  difficulty  of  developing  an  objective  process  of  general  applicability  to  determine  what  programming  may  or  may  not  be  essential  to  preserve  and  protect  competition.  The  Commission 
 therefore  declined  to  narrow  the  scope  of  the  exclusivity  prohibition  to  apply  only  to  certain  types  of  programming  that  may  be  considered  essential  programming  services.  372 


 127.  Permanent  Foreclosure.  We  note  at  the  outset  that  all  of  News  Corps  satellite  cable  programming  networks  are  currently  covered  by  the  non-  discrimination  and  unfair  practices  prohibitions 
 in  the  program  access  rules,  and  will  continue  to  be  subject  to  the  rules  based  on  the  proposed  ownership  structure  of  the  post-  transaction  entity.  373  News  Corp.  meets  the  definition  of  a  satellite  cable 


 368  Program  Access  Order,  17  FCC  Rcd  at  12138    32. 
 369  Program  Access  Order,  17  FCC  Rcd  at  12139    33. 
 370  Program  Access  Order,  17  FCC  Rcd  at  12139    33. 
 371  Program  Access  Order,  17  FCC  Rcd  at  12139    33. 
 372  Program  Access  Order,  17  FCC  Rcd  at  12156    69. 
 373  This  includes  News  Corp.  s  satellite-  delivered  regional  sports  networks.  We  address  those  programming  assets 
 separately  because,  as  described  in  the  next  section,  in  contrast  to  our  findings  here  with  respect  to  national  and  (continued.) 
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 which  demand  and  substitutability  may  vary  greatly  across  a  continuum.  385  The  record  does  not  support  a  conclusion  that  either  News  Corp.  or  other  MVPDs  consider  News  Corp.  s  national  and  non-  sports 
 regional  programming  networks  to  be  so  highly  desired  by  subscribers  that  they  will  switch  MVPD  providers  to  obtain  it  if  temporarily  foreclosed  from  accessing  it  on  their  incumbent  providers  systems.  386 
 Nor  does  the  record  contain  any  other  evidence  that  consumers  value  this  type  of  programming  to  such  an  extent  that  they  will  change  MVPDs  rather  than  substitute  different  programming  carried  by  their 
 chosen  MVPD.  Rather,  we  find  that  News  Corp.  s  general  entertainment  and  news  cable  programming  networks  participate  in  a  highly  competitive  segment  of  programming  market  with  available  reasonably 
 close  programming  substitutes.  387 
 130.  Further,  we  find  no  evidence  in  the  record  that  News  Corp.  has  attempted  to  temporarily  foreclose  an  MVPDs  access  to  its  national  and  non-  sports  regional  programming  in  order  to  achieve 


 better  carriage  conditions  or  higher  rates.  To  the  contrary,  in  most,  if  not  all,  instances  the  record  indicates  that  News  Corp.  has  used  negotiations  for  carriage  of  other  programming  that  does  have 
 significant  market  power  for  which  there  are  no  close  substitutes    its  regional  sports  networks  and  local  broadcast  television  station  programming  --  to  ensure  carriage  of  many  of  its  general  entertainment  and 
 other  cable  networks.  388  [REDACTED].  389  There  is  no  evidence  in  the  record  to  suggest  that  News  Corp.  s  acquisition  of  a  controlling  interest  in  DirecTV  is  likely  to  give  it  any  additional  market  power 
 with  respect  to  carriage  negotiations  for  its  national  and  non-  sports  regional  cable  programming  networks.  Consequently,  we  find  that  News  Corp.  could  not  effectively  use  a  controlling  interest  in  DirecTV  to 
 increase  rates  for  national  and  non-  sports  regional  programming  to  levels  above  those  that  would  exist  absent  the  transaction. 


 131.  We  therefore  decline  to  adopt  suggestions  from  commenters  and  opponents  that:  (a)  are  already  addressed  by  the  additional  conditions  Applicants  have  offered;  (b)  intended  to  remedy  situations 
 unrelated  to  this  transaction;  (c)  calculated  to  remedy  harms  that  we  have  determined  are  unlikely  to  occur;  (d)  would  not  adequately  remedy  the  likely  harms  of  the  transaction;  (e)  single  Applicants  out  for 
 special  treatment  unwarranted  by  any  likely  adverse  consequences  of  the  transaction;  or  (f)  would  leave  Applicants  in  a  worse  position  following  the  transaction  than  they  are  today.  390  The  goal  of  our  license 


 385  See  supra  at  para  59;  See  also  Program  Access  Order,  17  FCC  Rcd  12138    33. 
 386  As  discussed  below,  we  reach  a  different  conclusion  regarding  the  amount  of  market  power  News  Corp. 
 possess  regarding  its  RSNs. 
 387  The  2002  Video  Competition  Report  reported  208  satellite  delivered  national  programming  networks.  2002 
 Video  Competition  Report,  17  FCC  Rcd  at  26960    59.  The  success  of  the  Fox  News  Channel  demonstrates  the  competitiveness  of  the  general  cable  programming  segment.  Launched  in  1996,  the  network  was  able  to  overtake 


 long  standing  ratings  leader  CNN,  and  since  2002  has  since  consistently  finished  first  among  cable  news  channels  in  total  day  ratings.  See  Statement  of  Rupert  Murdoch,  Chairman  and  CEO,  News  Corp.  Before  Senate 
 Commerce  Comm.  (May  22,  2003). 
 388  Indeed,  the  record  indicates  that  News  Corp.  has  achieved  unparalleled  levels  of  distribution  for  some  of  its 
 cable  networks  as  a  direct  result  of  its  ability  to  require  carriage  of  these  networks  as  a  condition  of  access  to  its  regional  sports  and  broadcast  television  signals.  See  JCC  Comments  at  21-  29.  See  also  ACA  Comments  in  MB 


 Docket  No.  03-  172  (Video  Competition  Report)  at  6. 
 389  [REDACTED]. 


 390  For  example,  EchoStar  proposes  that  the  Applicants  be  prevented  from  sharing  information  internally;  that 
 program  access  requirements  be  extended  to  apply  to  Liberty  Medias  programming  assets  and  to  programming  (continued.) 
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 transfer  application  review  process  is  to  allow  parties  to  realize  the  economic  efficiencies  associated  with  the  transaction,  while  ensuring  that  any  harms  resulting  from  the  license  transfer  are  mitigated  and  some 
 portion  of  the  benefits  of  the  transfer  are  passed  on  to  the  public.  An  application  for  a  transfer  of  control  of  Commission  licenses  is  not  an  opportunity  to  correct  any  and  all  perceived  imbalances  in  the  industry. 
 Those  issues  are  best  left  to  broader  industry-  wide  proceedings. 
 132.  In  conclusion,  we  believe  as  a  general  matter  that  the  Commissions  program  access  rules  are  satisfactory  to  address  any  imbalance  of  power  between  News  Corp.  and  competing  MVPDs  with 


 respect  to  national  and  non-  sports  regional  cable  programming  networks.  Likewise,  our  acceptance  of  the  offered  conditions  ensures  that  any  imbalance  that  may  exist  between  DirecTV  and  some  of  its 
 competitors  in  the  MVPD  market  is  remedied  in  the  same  manner  as  with  vertically  integrated  MVPDs  that  use  cable  technology  to  deliver  their  product  to  consumers,  regardless  of  the  effect  of  any  post-closing 
 changes  in  the  corporate  relationships  between  News  Corp.  and  its  various  cable  programming  affiliates.  In  contrast,  as  described  below,  the  record  indicates  that  News  Corp.  has  considerable  market 
 power  with  respect  to  its  regional  sports  networks  and  its  local  broadcast  station  signals,  that  the  transaction  is  likely  to  increase  its  incentive  and  ability  to  use  that  market  power  to  obtain  substantially 
 greater  fee  increases  and  other  carriage  concessions  for  such  programming  than  it  can  today,  and  that  additional  remedial  actions  are  therefore  warranted  for  such  video  programming. 


 b.  Access  to  Regional  Sports  Cable  Programming  Networks 
 (i)  Background 
 133.  Since  the  Commission  first  began  tracking  regional  cable  programming  networks  in  1998,  391  it  has  repeatedly  recognized  the  importance  of  regional  sports  programming  to  MVPD 


 offerings.  392  This  acknowledgement  is  based,  in  part,  on  the  finding  that  for  such  programming,  there  are  no  readily  acceptable  close  substitutes.  393  The  basis  for  the  lack  of  adequate  substitutes  for  regional  sports 
 programming  lies  in  the  unique  nature  of  its  core  component:  regional  sports  networks  (  RSNs)  typically  purchase  exclusive  rights  to  show  sporting  events  and  sports  fans  believe  that  there  is  no  good 


 (Continued  from  previous  page)  that  Congress  did  not  choose  to  subject  to  the  rules  and  that  News  Corp.  be  limited  to  offering  programming  at 
 published  rates  that  are  preapproved  by  the  Commission.  See  EchoStar  Petition  at  64.  Pegasus  suggests  that  we  impose  specialized  corporate  governance  rules  and  FCC  filing  requirements  on  all  contracts  between  Fox  and 
 DirecTV  for  a  period  of  five  years.  See  Pegasus  Sept.  30,  2003  Ex  Parte.  Cablevision  asks  that  we  revise  the  program  access  commitments  to  prevent  News  Corp.  from  using  sweetheart  deals  with  DirecTV  to  force  higher 
 prices  on  all  other  MVPDs.  Cablevision  Comments  at  2,  30. 
 391  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  13  FCC 
 Rcd  24284)  (1998)  (  1998  Video  Competition  Report). 
 392  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  17  FCC 
 Rcd  1244,  1314    171  (2002)  (  2001  Video  Competition  Report)  (finding  that  regional  sports  programming  continues  to  be  an  important  segment  of  programming  for  all  MVPDs);  Program  Access  Order,  17  FCC  Rcd  at 


 12138    32  (finding  no  readily  acceptable  substitute  for  RSN  programming). 
 393  Program  Access  Order,  17  FCC  Rcd  at  12148-  49    54  (  the  incentive  for  the  vertically  integrated  regional 
 programmer  to  foreclose  programming,  is  further  increased  in  situations  in  which  there  is  no  readily  acceptable  substitute  for  the  programming,  such  as  regional  sports  programming). 
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 substitute  for  watching  their  local  and/  or  favorite  team  play  an  important  game.  394  The  Commissions  extension  of  the  sunset  date  for  the  exclusivity  program  access  rules  last  year  was  intended,  in  part,  to 
 ensure  that  competing  MVPDs  would  have  continued  access  to  the  satellite-  delivered  regional  sports  programming  owned  by  vertically  integrated  cable  operators.  395  We  also  have  long  recognized  that  the 
 terrestrial  distribution  of  programming  particularly  RSN  programming  by  vertically  integrated  cable  operators  could  competitively  disadvantage  competing  MVPDs  if  they  were  denied  access  to  the 
 terrestrially  delivered  programming.  396 
 134.  News  Corp.  is  a  major  owner  of  RSNs.  It  owns  or  has  an  attributable  interest  in  19  RSNs,  12  of  which  it  manages,  which  reach  79  million  television  households.  397  According  to  NCTAs 


 Cable  Developments  2003,  those  RSNs  produce  over  4,700  live  events  each  year,  and  carry  65  of  the  80  professional  Major  League  Baseball  (  MLB),  National  Basketball  Association  (  NBA)  and  National 
 Hockey  League  (  NHL)  teams.  398  RSNs  wholly  owned  by  News  Corp.  carry  45  of  the  80  professional  teams,  399  and  thus  controls  a  significant  amount  of  professional  sports  programming  on  regional  sports 
 networks. 
 (ii)  Positions  of  the  Parties 
 135.  Applicants  contend  that  it  would  be  unprofitable  for  News  Corp.  to  foreclose  access  to  its  RSNs.  They  assert  that  DirecTVs  maximum  share  of  any  regional  market  served  by  one  of  the  News 


 Corp.  s  RSNs  is  less  than  13%,  and  that  denying  programming  to  competing  MVPDs  would  require  News  Corp.  to  forego  programming  sales  to  at  least  87%  of  each  regional  market.  400  They  further  argue  that  the 


 394  Regional  sports  programming  in  particular,  has  been  and  continues  to  be,  an  important  segment  of 
 programming  for  all  video  programming  providers.  According  to  a  2000  survey,  between  40  and  48  percent  of  cable  subscribers  would  be  less  likely  to  subscribe  to  cable  service  if  it  lacked  local  sports.  Cable  overbuilders 


 have  frequently  noted  that  access  to  sports  programming  is  so  essential  to  the  success  of  a  cable  system  that  many  operators  will  pay  exorbitant  prices  and  agree  to  entertain  other  less  attractive  business  arrangements  just  to  obtain 
 it.  FCC,  OPP  Working  Paper  #37,  Broadcast  Television:  Survivor  in  a  Sea  of  Competition  at  124  (citing  2000  Video  Competition  Report,  17  FCC  Rcd  at  1354-  1356;  1998  Video  Competition  Report,  13  FCC  Rcd  at  24298-  99 
 and  24380-  81). 
 395  Program  Access  Order,  17  FCC  Rcd  at  12147-  49    52-  55  (finding  that  vertically  integrated  MSOs  continue  to 
 have  an  incentive  and  ability  to  withhold  access  to  their  affiliated  RSNs). 
 396  E.  g.,  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  17 
 FCC  Rcd  1252    14  (2002)  (  2002  Video  Competition  Report);  2001  Video  Competition  Report,  17  FCC  Rcd  at  1252    14;  2000  Video  Competition  Report,  16  FCC  Rcd  at  6013    15  (2001);  Annual  Assessment  of  the  Status  of 


 Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  15  FCC  Rcd  978,  986    16  (2000)  (  1999  Video  Competition  Report);  Program  Access  Order,  17  FCC  Rcd  at  12139  n.  107  (citing  data  provided  by  DirecTV  and 
 EchoStar  indicating  that  they  have  significantly  lower  subscribership  in  Philadelphia  as  compared  to  other  large  cities  and  noting  that  DirecTVs  and  EchoStars  claim  that  this  is  directly  attributable  to  their  inability  to  access 
 Comcast  SportsNet). 
 397  See  Application  at  26. 


 398  NCTA,  Cable  Developments  2003  at  83. 
 399  JCC  Comments  at  38  (citing  www.  newscorp.  com/  management/  fsn.  html). 
 400  Applicants  Reply,  CRA  Analysis    46. 
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 loss  in  programming  revenues  from  competing  MVPDs  that  would  result  from  a  strategy  of  foreclosure  could  not  be  offset  by  any  profits  it  might  earn  as  a  minority  owner  of  an  MVPD  with  a  relatively  small 
 market  share.  401  Applicants  further  assert  that  much  of  its  programming  is  jointly  owned  by  other  parties,  who  could  not  benefit  from,  and  therefore  would  not  tolerate,  such  a  strategy.  402  Applicants  also  maintain 
 that,  even  if  a  foreclosure  strategy  made  economic  sense,  the  program  access  rules  in  unison  with  their  proposed  program  access  commitments  require  them  to  make  all  existing  and  future  programming 
 available  on  a  nondiscriminatory  basis  to  all  MVPDs  and  prohibit  DirecTV  from  entering  into  exclusive  deals  with  affiliated  programmers.  403 


 136.  Competing  MVPDs  consider  RSNs  critical  to  any  MVPD  offering.  404  They  contend  that,  if  they  cannot  offer  the  must-  have  programming  which  is  controlled  by  News  Corp.,  such  as  News 
 Corp.  s  RSNs,  they  will  be  unable  to  compete  with  DirecTV.  405  JCC  observe  that  the  harm  to  the  competitive  MVPD  .  .  .  is  further  increased  in  situations  in  which  there  is  no  readily  acceptable  substitute 
 for  the  programming,  such  as  regional  sports  programming.  406  JCC  also  assert  that  News  Corp.  Chairman  Rupert  Murdoch  has  long  described  sports  programming  as  his  battering  ram  to  attack  pay 
 television  industries  around  the  world,  and  argue  that  acquiring  DirecTV  will  give  News  Corp.  the  ability  to  dictate  the  terms  and  conditions  of  carriage  for  such  marquee  programming.  407  In  addition,  JCC 
 cite  reports  that  News  Corp.  has  raised  the  cost  of  its  Fox  Sports  content  by  more  than  30%  in  one  year  for  some  systems  and  has  already  demonstrated  its  willingness  to  withhold  its  RSNs  programming  signal 
 from  cable  operators  unwilling  to  adhere  to  its  demands  for  higher  carriage  fees.  408  RCN  argues  that  lack  of  access  to  local  sports  programming  works  particular  hardships  upon  competitive  MVPDs,  citing  results 
 of  surveys  conducted  for  it  by  professional  polling  organizations  as  confirming  the  vital  importance  of  local  sports  programming  to  a  cable  operators  success:  the  data  show  that  some  40-  48%  of  cable 
 subscribers  would  be  less  likely  to  subscribe  to  cable  service  if  it  lacked  local  sports  programming  and,  in  one  survey,  an  additional  12%  of  subscribers  said  they  were  not  sure  whether  the  absence  of  local  sports 
 programming  would  impact  their  decision  whether  to  take  the  service.  409  According  to  RCN,  in  rough  terms  this  indicates  that  a  competitive  MVPD  that  does  not  have  local  sports  programming  will  have  little 
 or  no  chance  of  winning  as  subscribers  as  much  as  40-  70%  of  its  potential  subscriber  base,  with  the  result 


 401  Id. 
 402  Applicants  Reply,  Lexecon  Analysis    62. 
 403  See  Application  at  54. 
 404  JCC  Comments  at  34-  44;  ACA  Comments  at  16,  18-  21;  EchoStar  Petition  at  22-  24,  31;  RCN  Comments  at  3-  4. 
 405  EchoStar  Petition  at  22-  23;  ACA  Comments  at  18;  JCC  Comments  at  55. 
 406  Id.  (citing  Program  Access  Exclusivity  Report  and  Order,  17  FCC  Rcd  at  12145    47). 
 407  JCC  Comments  at  34  (citing  David  D.  Kilpatrick,  Murdochs  First  Step:  Make  Sports  Fans  Pay,  N.  Y.  Times, 
 Apr.  14,  2003,  at  C1). 
 408  JCC  Comments  at  39-  42  (noting  three  disputes  in  which  a  Fox  RSN  was  withdrawn  form  cable  subscribers 
 homes:  1)  Fox  Sports  North  to  150,000  Time  Warner  customers,  2)  Fox  Sports  Sunshine  Network  to  almost  2  million  Time  Warner  customers,  and  3)  certain  sporting  events  on  Fox  Sports  Net  West). 


 409  See  Letter  from  Kathy  L.  Cooper  and  L.  Elise  Dieterich,  Swidler,  Berlin,  Shereff,  Friedman,  LLP,  to  Marlene 
 H.  Dortch,  Secretary,  FCC  (Oct.  24,  2003)  (  RCN  Oct.  24,  2003  Ex  Parte),  Attachment  at  2-  3. 
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 being  that  without  local  sports,  RCN  must  try  to  reach  a  break-  even  penetration  rate  of  30%  of  the  market  from  a  potential  subscriber  base  that  only  includes  30-  60%  of  the  market  to  begin  with.  410 
 137.  JCC  contend  that  DirecTV  already  uses  its  sports  programming  offerings  as  an  important  marketing  tool  and  a  competitive  strategy.  411  Further,  they  argue  that  DirecTV  siphons  customers  away 
 from  cable  every  time  a  cable  MSO  fails  to  come  to  terms  with  an  RSN.  412  After  the  transaction,  JCC  maintains,  this  increase  in  DirecTV  subscriptions  from  customers  who  regard  RSNs  as  must  have 
 programming  will  generate  additional  profits  for  News  Corp,  thus  increasing  News  Corp.  s  incentive  to  precipitate  carriage  disputes  over  RSNs  with  rival  MVPDs.  413  JCC  also  claim  that  by  picking  and 
 choosing  its  targets  and  timing  with  care,  News  Corp.  would  also  send  powerful  signals  to  the  marketplace,  which  is  likely  to  cause  other  competing  MVPDs  simply  to  accept  News  Corp.  s  price 
 increases.  414  Commenters  claim  that  the  increased  price  of  News  Corp.  s  RSN  programming  is  likely  to  harm  consumers  through  higher  cable  rates  in  the  short  term,  and  diminished  competition  in  the  MVPD 
 marketplace  in  the  long  term.  415  Commenters  also  contend  that  despite  the  program  access  rules,  News  Corps  inflexibility  over  rates,  terms  and  conditions  of  carriage  of  its  RSNs  and  its  willingness  to 
 withhold  those  networks  from  cable  operators  if  a  carriage  agreement  cannot  be  reached  will  be  exacerbated  by  the  ability  to  distribute  programming  via  DirecTV.  416  Additionally  JCC  argue,  News 
 Corp.  may  insist  on  bundling  carriage  of  RSNs  with  other  newer  or  less  desirable  programming  with  the  result  that  the  battering  ram  of  News  Corp.  s  sports  programming  delivers  a  one-  two  punch:  higher 
 prices  and  mandatory  carriage  of  new    and  expensive    programming.  417  Absent  intervention  from  the  Commission,  they  claim,  News  Corp.  s  acquisition  of  a  controlling  interest  in  DirecTV  can  be  expected  to 
 lead  to  higher  prices  and  more  high-  profile  showdown  negotiations  such  as  those  that  have  occurred  with  negotiations  over  Fox  Sports  Net  North  in  January  2003  and  Fox  Sports  Net  West  in  2001.  418 


 138.  JCC  provide  an  economic  analysis  of  the  competitive  effects  of  the  transaction  authored  by  William  Rogerson  (  Rogerson  Analysis),  which  finds  that  RSNs  are  must  have  programming  for 


 410  See  RCN  Oct.  24,  2003  Ex  Parte  Attachment  at  3. 
 411  JCC  Comments  at  40;  EchoStar  at  22-  24. 
 412  JCC  Comments  at  40.  See  also  Letter  from  Pantelis  Michaelopoulous,  Steptoe  &  Johnson,  to  Marlene  H. 
 Dortch,  Secretary,  FCC  (Dec.  15,  2003)  at  4-  5  (  EchoStar  Dec.  15  Ex  Parte)  (describing  increased  churn  among  its  New  York  DMA  subscribers  after  it  failed  to  reach  a  carriage  agreement  with  YES  Network). 


 413  JCC  Comments  at  42-  43. 
 414  Id. 
 415  JCC  Comments  at  4,  42-  43  and  Exhibit  A,  William  P.  Rogerson,  An  Economic  Analysis  of  Competitive  Effects 
 of  the  Takeover  of  DirecTV  by  News  Corp.  (  Rogerson  Analysis)  at  4,  27;  Letter  from  Chris  Murray,  Legislative  Counsel,  Consumers  Union  to  Marlene  H.  Dortch,  Secretary,  FCC  (Sept.  23,  2003)  (  Consumers  Union  Sept.  23, 


 2003  Ex  Parte)  at  3-  5;  ACA  Reply  Comments  at  5-  7. 
 416  JCC  Comments  at  34;  ACA  Comments  at  18. 


 417  JCC  Comments  at  40. 
 418  JCC  Comments  at  42-  43. 
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 which  no  good  substitute  exists.  419  According  to  Rogerson,  this  means  that  News  Corp.  could  harm  rivals  by  pursuing  exclusionary  or  cost-  raising  strategies  with  respect  to  this  programming.  420  Examining 
 several  recent  incidents  where  the  programming  supplier  withdrew  sports  programming  from  an  MVPD  during  carriage  negotiations,  the  Rogerson  Analysis  concludes  that  significant  numbers  of  subscribers 
 leave  MVPDs  that  no  longer  offer  local  sports  programming.  421 
 139.  Applicants  respond  with  an  economic  analysis  by  Charles  River  Associates,  Inc.  (the  CRA  Analysis)  that  supports  their  argument  that  it  would  not  be  profitable  for  post-  transaction  News 


 Corp.  to  withhold  RSN  signals.  422  The  CRA  Analysis  concludes  that  the  costs  of  permanently  foreclosing  competing  MVPDs  from  access  to  News  Corp.  s  RSN  programming  outweigh  the  benefits  of  such  a 
 strategy.  423  Specifically,  the  CRA  Analysis  finds  that,  in  order  for  permanent  foreclosure  to  be  a  profitable  strategy,  DirecTV  would  have  to  more  than  double  its  subscribership  in  the  combined  RSN 
 footprint.  424  Applicants  contend  that  such  subscribership  increases  are  implausible.  425 
 140.  In  support  of  their  claim,  Applicants  describe  the  effects  of  the  loss  of  Yankee  games  by  Cablevision  following  the  formation  of  the  Yankees  Entertainment  and  Sports  (  YES)  Network.  426 


 According  to  the  Applicants,  Cablevision  lost  just  30,000  subscribers  1%  of  its  overall  subscriber  base  as  a  result  of  its  inability  to  carry  Yankee  games  during  the  2002  season,  while  DirecTVs 
 subscribership  in  the  affected  region  increased  by  only  a  few  percentage  points  far  less  than  the 


 419  JCC  Comments,  Rogerson  Analysis  at  13-  16.  JCC  submitted  a  total  three  exhibits  prepared  by  William  P. 
 Rogerson.  See  Letter  from  Bruce  D.  Sokler,  Mintz,  Levin,  Cohn,  Ferris,  Glovsky  and  Popeo,  PC,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Aug.  4,  2003)  (  JCC  Aug.  4  Ex  Parte)  Attachment,  William  P.  Rogerson,  A  Further 


 Economic  Analysis  of  The  News  Corp.  Takeover  of  DirecTV  (  Rogerson  Analysis  II);  Letter  from  Fernando  Laguarda,  Mintz,  Levin,  Cohn,  Ferris,  Glovsky  and  Popeo,  PC,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Sept.  23, 
 2003),  (  JCC  Sept.  23,  2003  Ex  Parte),  William  P.  Rogerson,  Economic  Analysis  of  The  Takeover  of  DirecTV  by  News  Corp.    Presentation  to  the  FCC  (Sept.  23,  2003)  (  Rogerson  Analysis  III). 


 420  JCC  Comments,  Rogerson  Analysis  at  12-  13. 
 421  Id.  at  15-  16. 
 422  Applicants  Reply,  Exhibit  B  Steven  C.  Salop  et  al  of  Charles  River  Associates,  Inc.,  News  Corporations 
 Partial  Acquisition  of  DirecTV:  Economic  Analysis  of  Vertical  Foreclosure  Claims.  See  also  Applicants  Reply,  Exhibit  A,  Lexecon,  Inc.,  Economic  Analysis  of  the  News  Corp./  DirecTV  Transaction  (  Lexecon  Analysis) 


 423  Applicants  Reply,  CRA  Analysis  at    44-  67. 
 424  Applicants  Reply  at  28  (citing  CRA  Analysis  at    44-  51). 
 425  Applicants  Reply  at  28-  29. 
 426  YES  entered  into  carriage  agreements  with  DirecTV,  Time  Warner,  and  a  number  of  other  MSOs  prior  to  the 
 start  of  the  2002  baseball  season.  John  Brennan,  New  Jersey  Official  Raise  Stakes  in  Battle  with  Cable-  Television  Firm,  THE  RECORD  (Apr.  30,  2002).  EchoStar  and  Cablevision,  which  had  both  carried  MSGN  programming  in 


 2001,  did  not  reach  agreements  with  YES,  however,  and  thus  could  no  longer  offer  New  York  Yankees  games  in  2002.  See  RSNs:  Keeping  it  Local,  THE  BRIDGE  (Aug.  2003),  available  at: 
 http://  www.  cabletoday.  com/  pubs/  bridge/  the_  bridge_  archive/  bridge082003.  pdf  (visited  Sep.  11,  2003).  YES  and  Cablevision  later  reached  a  carriage  agreement.  Harry  Berkowitz  and  Dan  Janison,  Victory  for  Yanks  Fans: 
 Cablevision  Agrees  to  Carry  YES  Network  in  Time  for  Opener,  NEWSDAY  (Mar.  13,  2003). 
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 increases  in  market  share  that  Applicants  contend  are  required  for  RSN  foreclosure  to  be  profitable.  427  The  second  example  cited  by  Applicants  involved  a  carriage  dispute  between  a  Fox  RSN  and  a  Time 
 Warner  cable  system  in  Minnesota,  where,  according  to  Applicants,  Time  Warner  reported  a  loss  of  only  200  of  its  180,000  subscribers  in  the  region  during  the  two  months  that  it  lacked  the  programming.  428 
 Finally,  Applicants  cite  Comcasts  ongoing  refusal  to  make  its  RSN  in  Philadelphia  available  to  DirecTV  or  EchoStar.  Applicants  contend  that,  although  DirecTV  has  not  grown  as  quickly  in  this  market  as  in 
 others,  neither  DirecTV  nor  EchoStar  has  exited  the  market,  and,  in  fact,  both  DBS  operators  have  continued  to  grow.  429 


 141.  In  response  to  claims  that  News  Corp.  will  increase  prices  for  its  affiliated  RSN  programming,  Applicants  assert  that,  like  foreclosure,  such  a  strategy  would  be  contrary  to  News  Corp.  s 
 economic  interest.  430  According  to  Applicants,  News  Corp.  cannot  increase  the  price  of  RSN  programming  without  risking  a  loss  of  subscribers,  and  vertical  integration  with  DirecTV  will  not  change 
 this.  431  Claiming  that  News  Corp.  s  fees  for  RSN  programming  already  maximize  the  profits  that  it  can  earn  on  the  programming,  432  Applicants  argue  the  transaction  actually  will  reduce  News  Corp.  s 
 incentive  to  raise  prices,  because  News  Corp.  would  lose  revenue  from  programming  fees  when  cable  operators  refuse  to  pay  the  higher  prices  and  stop  carrying  the  RSNs,  and  DirecTV  would  lose  money  due 
 to  the  increased  RSN  prices.  433  Applicants  further  contend  that  opponents  foreclosure  analysis  fails  to  take  into  account  the  downward  pressure  on  prices  associated  with  the  transaction,  such  as  elimination  of 
 double  marginalization  and  other  efficiencies.  434  Finally,  Applicants  claim  that  regardless  of  the  transaction,  News  Corp.  could  achieve  the  benefits  of  foreclosure  of  a  RSN  through  the  use  of 
 contracts.  435 
 142.  JCC  criticize  the  Applicants  for  failing  to  adequately  grapple  with  the  key  argument  that 


 427  Applicants  Reply  at  29. 
 428  Applicants  Reply  at  29  (citing  Judd  Zulgad,  FSN,  Time  Warner  Struggled  to  Agreement,  STAR  TRIBUNE  at  6C 
 (Mar.  14,  2003)). 
 429  Applicants  Reply  at  30.  In  response  to  claims  that  Applicants  would  have  a  greater  incentive  and  ability  to 
 withhold  programming  from  smaller  cable  operators,  Applicants  state  that  although  subscriber  losses  to  the  RSN  would  be  small,  so  would  subscriber  gains  to  DirecTV.  Applicants'  Reply  at  31. 


 430  Applicants  Reply  at  32. 
 431  Applicants  Reply  at  32. 
 432  Applicants  Reply  at  33  (citing  CRA  Analysis  at    92-  94). 
 433  Applicants'  Reply  at  33  (citing  CRA  Analysis  at    95-  100). 
 434  Applicants'  Reply  at  34. 
 435  Applicants  Reply  at  24;  see  also  Letter  from  William  M.  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP,  Gary 
 M.  Epstein,  Latham  &  Watkins,  and  Richard  E.  Wiley,  Wiley  Rein  &  Fielding,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Sept.  8,  2003)  (  Applicants  Sept.  8,  2003  Ex  Parte),  Exhibit  2,  Lexecon,  Inc.,  Response  to  William  P. 


 Rogerson  and  Daniel  L.  Rubinfeld  (  Lexecon  Analysis  II)  at  66.  Opponents  counter  that  it  would  be  difficult  for  independently  owned  and  controlled  firms  to  negotiate,  exchange  necessary  information,  and  monitor  compliance 
 with  the  complex  contracts  that  would  be  required  to  efficiently  apportion  the  benefits  of  temporary  foreclosure.  Rogerson  Analysis  II  at  22-  23. 
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 the  transaction  increases  the  likelihood  that  News  Corp.,  armed  with  the  increased  bargaining  power  its  interest  in  DirecTV  will  give  it,  will  withhold    or  threaten  to  withhold    programming  from  MVPDs  in  a 
 few  select  markets  for  only  a  short  period  of  time  in  order  to  obtain  additional  pricing  power  and  negotiating  leverage.  436  JCC  use  the  data  and  methodology  from  the  CRA  Analysis  to  support  their 
 temporary  foreclosure  theory.  Rogerson,  on  behalf  of  JCC,  notes  that  programmers,  including  News  Corp.,  currently  use  the  threat  of  withdrawing  programming  as  a  lever  to  negotiate  higher  programming 
 prices  from  MVPDs.  Any  change  in  circumstances,  according  to  Rogerson,  that  lowers  the  cost  to  News  Corp.  of  withdrawing  programming  will  increase  the  credibility  of  its  threat  to  withdraw  programming 
 and  therefore  will  increase  News  Corp.  s  ability  to  force  MVPDs  to  accept  higher  programming  prices.  News  Corp.  s  acquisition  of  control  of  DirecTV  reduces  the  cost  to  News  Corp.  of  withdrawing 
 programming  form  rivals  of  DirecTV  because:  (i)  when  News  Corp.  withdraws  programming  from  rival  MVPDs,  some  customers  will  switch  to  DirecTV  and  DirecTV  will  earn  profits  on  the  customers  who 
 switch;  and  (ii)  these  profits  offset  the  cost  to  News  Corp.  of  withdrawing  programming  and  therefore  reduce  the  net  cost  of  withdrawing  programming.  As  Rogerson  notes,  this  will  make  the  threat  of 
 withdrawing  programming  more  credible  and  thus  allow  News  Corp.  to  bargain  for  higher  prices.  437  Moreover,  Rogerson  concludes,  the  threat  to  competition  and  consumers  by  temporary  withdrawals  of 
 must  have  programming  will  be  particularly  serious  in  less  dense  regions  of  the  country  served  by  small  and  medium  sized  cable  operators  [because]  raising  the  price  of  programming  from  these  firms  is 
 more  likely  to  drive  them  entirely  out  of  the  market,  and  this  in  turn  will  increase  News  Corp.  s  incentive  to  use  its  bargaining  power  in  this  manner,  with  the  potential  result  of  significant  price 
 increases.  438  ACA  argues  that  these  conclusions  confirm  that  smaller  and  medium  sized  cable  operators  outside  urban  areas  of  the  country  are  at  particular  risk  from  the  combination  of  News  Corp.  s 
 programming  and  DirecTVs  distribution  assets,  and  that  the  Applicants  proposed  program  access  undertakings  offer  smaller  cable  operators  no  protection,  because,  as  Rogerson  and  the  Applicants 
 acknowledge,  the  proposed  conditions  expressly  allow  quantity  discounts  and  therefore  place  very  little  constraint  on  the  prices  that  News  Corp.  could  charge  smaller  cable  systems.  439 


 143.  According  to  Rogersons  calculations,  temporary  withdrawals  of  programming  by  News  Corp.  are  likely  to  not  only  partially  offset  losses  during  the  blackout  periods  for  RSN  programming,  but 
 are  very  likely  to  be  profitable  for  News  Corp.  after  it  acquires  control  of  DirecTV.  These  temporary  withdrawals  will  directly  harm  consumers  and  also  provide  News  Corp.  with  even  more  bargaining 
 leverage  in  its  negotiations  over  programming  prices  with  rival  MVPDs.  440  Additionally,  Rogerson  finds,  using  data  contained  in  the  CRA  Analysis,  that  if  News  Corp.  temporarily  withholds  an  RSN  from 
 a  targeted  MVPD,  it  breaks  even  economically  if  less  than  [REDACTED]  of  that  MVPDs  subscribers  migrate  to  DirecTV.  441  As  a  consequence,  Rogerson  concludes,  News  Corp.  will  --  because  of  the 
 transaction    be  able  to  bargain  for  higher  programming  prices  than  it  would  otherwise,  and  consumers 


 436  JCC  Aug.  4,  2003  Ex  Parte  at  Rogerson  Analysis  II. 
 437  JCC  Aug.  4,  2003  Ex  Parte  at  15,  Rogerson  Analysis  II  at  43-  44. 
 438  JCC  Aug.  4,  2003  Ex  Parte  at  15,  Rogerson  Analysis  II  at  4. 
 439  ACA  Comments  at  5-  7;  ACA  Oct.  17,  2003  Ex  Parte  at  1,  10. 
 440  JCC  Aug.  4,  2003  Ex  Parte  at  15,  Rogerson  Analysis  II  at  43-  44. 
 441  JCC  Sept.  23  Ex  Parte,  Rogerson  Analysis  III  at  11. 
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 will  suffer  as  these  increased  input  costs  are  passed  along  to  them  by  their  MVPDs.  442 
 144.  JCC  argue  accordingly  that  News  Corp.  would  not  need  to  achieve  enormous  increases  in  subscribership  or  pricing  using  DirecTV  to  make  temporary  withholdings  of  must-  have  programming 


 a  viable  and  profitable  strategy.  443  They  argue  that:  (1)  internal  News  Corp.  documents  show  that  News  Corp.  already  engages  in  temporary  programming  withdrawals  of  must-  have  programming,  such  as 
 RSNs;  (2)  acquiring  control  over  DirecTV  will  reduce  the  costs  of  such  tactics  to  News  Corp.  and  therefore  create  upward  pressure  on  programming  prices;  and  (3)  News  Corp.  recognizes  the  value  of 
 effectuating  a  service  interruption  in  a  particular  market  in  order  to  send  a  message  to  distributors  in  other  markets  about  the  costs  of  resisting  its  fee  and  carriage  demands.  444  They  claim  that  the  transaction 
 changes  the  present  balance  of  terror  between  programmers  and  MVPD  distributors.  445  JCC  explain  that  News  Corp.  currently  does  not  know  whether  the  loss  of  subscription  and  advertising  revenue 
 resulting  from  a  temporary  withdrawal  of  RSN  or  FOX  programming  will  be  recouped  via  higher  carriage  fees  gained  from  that  distributor  (and  others  in  adjacent  markets)  once  the  impasse  is  resolved. 
 According  to  JCC,  the  acquisition  substantially  reduces,  if  not  eliminates,  the  pre-  transaction  risks  to  News  Corp.  of  failing  to  conclude  a  carriage  agreement  with  a  cable  operator  or  other  MVPD  for  must 
 have  programming.  446  JCC  emphasize  that  the  key  competitive  concern  is  that  this  transaction  will  enable  News  Corp.  to  use  temporary  foreclosure  and/  or  the  threat  of  such  foreclosure  as  a  tactical 
 weapon  to  obtain  supra-  competitive  prices  for  Fox  programming  from  all  retail  distributors,  and  that  those  prices  will  ultimately  be  borne  by  consumers.  447 


 145.  Applicants  respond  that  reliance  of  the  JCC  upon  selective  portions  of  internal  News  Corp.  documents  is  misplaced,  and  that  News  Corp.  does  not  engage  in  a  temporary  foreclosure 
 negotiation  strategy  with  respect  to  its  RSNs.  448  Rather,  Applicants  claim  that  News  Corp.  seeks  maximum  distribution  of  its  programming.  449  Applicants  maintain  that  in  nearly  every  instance 
 involving  renewal  of  an  RSN,  the  parties  have  been  able  to  reach  an  agreement  without  service  interruptions,  and  that  temporary  service  interruptions  have  occurred  only  rarely  during  negotiations  with 
 MVPDs  for  Fox  RSN  carriage.  450  Applicants  argue  further  that  JCC  fail  to  take  into  account  the  evidence  of  the  actual  negative  effects  of  temporary  service  interruptions  to  News  Corp.,  where  these  have 


 442  JCC  Sept.  23  Ex  Parte;  Rogerson  Analysis  III  at  2. 
 443  Letter  from  Bruce  Sokler,  Mintz,  Levin,  et  al.  to  Marlene  Dortch,  Secretary,  FCC  (Nov.  5,  2003)  (  JCC  Nov.  5, 
 2003  Ex  Parte). 
 444  Id. 


 445  JCC  reiterate  their  claim  that  News  Corp.  will  use  DirecTV  as  a  negotiating  weapon.  Id.  See  also  ACA 
 Comments  at  18. 
 446  Id.  Similarly  NRTC  notes  that  News  Corp.  could  threaten  cable  operators  by  using  DirecTV  to  acquire  market 
 share.  NRTC  Petition  at  14. 
 447  Id.  at  2;  See  also  Consumers  Union  Sept.  23,  2003  Ex  Parte  at  3. 


 448  Letter  from  William  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP  to  Marlene  Dortch,  Federal  Communications 
 Commission  (Nov.  13,  2003)  (  Applicants  Nov.  13,  2003  Ex  Parte). 
 449  Id.  at  2. 


 450  Id.  at  2. 
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 occurred.  Applicants  claim  that  there  is  no  evidence  to  support  theories  that  the  acquisition  of  a  partial  interest  in  DirecTV  would  materially  change  the  relative  bargaining  power  of  News  Corp.  and  MVPDs. 
 In  fact,  Applicants  argue,  real-  world  experience  with  withdrawals  of  sports  programming  from  cable  operators  in  other  markets  (such  as  the  Cablevision/  YES  dispute)  demonstrates  that  very  little  switching 
 of  subscribers  to  DBS  providers  carrying  the  foreclosed  programming  actually  occurs.  451  Finally,  Applicants  reiterate  that  temporary  withholding  of  RSNs  is  unlikely  to  occur  because  News  Corp.  is 
 likely  to  suffer  significantly  greater  financial  losses  than  the  MVPD  if  the  RSN  signal  is  not  carried.  452  According  to  the  Applicants,  while  News  Corp.  will  lose  the  subscriber  fees  and  advertising  revenues  that 
 it  would  have  realized  through  carriage  on  the  MVPD,  the  MVPD    able  to  publicize  to  its  subscribers  that  the  RSN  signal  will  be  restored  once  the  carriage  dispute  is  concluded  --  suffers  nothing  more  than 
 customer  annoyance.  453 
 146.  EchoStar  takes  issue  with  the  characterization  of  the  harm  inflicted  on  the  MVPD  as  mere  customer  annoyance,  and  argues  that  the  absence  of  regional  sports  .  .  .  from  an  MVPDs  package, 


 even  for  a  short  period  of  time,  has  a  debilitating  effect  on  that  distributors  ability  to  compete  in  the  region  in  question  .  .  .  [T]  he  distributor  would  have  lost  existing  subscribers,  potential  new  subscribers, 
 and  would  have  suffered  a  serious  reputational  blow.  All  of  these  losses  would  be  irreparable    the  subscribers  who  departed  or  chose  another  distributor  would  almost  certainly  not  come  back  when  the 
 programming  returns.  454 
 (iii)  Discussion 
 147.  We  conclude  that  News  Corp.  currently  possesses  significant  market  power  with  respect  to  its  RSNs  within  each  of  their  specific  geographic  regions,  and  that  the  proposed  transaction  will 


 enhance  News  Corp.  s  incentive  and  ability  to  temporarily  withhold  or  threaten  to  withhold  access  to  its  RSN  programming  to  increase  the  fees  it  receives  for  the  programming,  over  and  above  what  it  could 
 negotiate  absent  the  transaction,  to  the  ultimate  detriment  of  the  public.  Moreover,  we  find  that  in  contrast  to  the  situation  with  respect  to  access  to  national  and  non-  sports  regional  programming,  neither 
 our  program  access  rules  nor  Applicants  proposed  program  access  commitments  are  sufficient  to  protect  against  these  likely  transaction-  specific  harms. 


 148.  At  the  outset,  we  agree  with  commenters  that  there  are  no  reasonably  available  substitutes  for  News  Corp.  s  RSN  programming  and  that  News  Corp.  thus  currently  possesses  significant  market 
 power  in  the  geographic  markets  in  which  its  RSNs  are  distributed.  We  base  these  conclusions,  in  part,  on  the  limited  number  of  teams  and  games  of  local  interest  that  are  available  and  [REDACTED],  455  and 
 on  our  economic  analysis,  described  below,  of  the  effects  of  temporary  withdrawals  of  such  programming 
 451  Id.  at  4. 
 452  Letter  from  William  M.  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP,  Gary  M.  Epstein,  Latham  &  Watkins,  and 
 Richard  E.  Wiley,  Wiley  Rein  &  Fielding,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Dec.  11,  2003)  (  Applicants  Dec.  11  Ex  Parte),  Attachment  at  1;  Letter  from  William  M.  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP,  Gary 


 M.  Epstein,  Latham  &  Watkins,  and  Richard  E.  Wiley,  Wiley  Rein  &  Fielding,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Dec.  12,  2003)  (  Applicants  Dec.  12  Ex  Parte),  Attachment  at  1. 


 453  Applicants  Dec.  11  Ex  Parte,  Attachment  at  1. 
 454  EchoStar  Dec.  15  Ex  Parte  at  2. 
 455  See  [REDACTED]. 
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 from  MVPD  subscribers.  An  additional  feature  of  RSN  programming  that  sets  it  apart  from  general  entertainment  programming  is  the  time-  sensitivity  of  the  airing  of  important  local  professional  sports 
 events,  such  as  opening  days  or  playoffs.  As  we  have  previously  observed,  456  RSNs  are  comprised  of  assets  of  fixed  or  finite  supply    exclusive  rights  to  local  professional  sports  teams  and  events    for  which 
 there  are  no  acceptable  readily  available  substitutes.  These  peculiar  features  of  RSN  programming  give  rise  to  somewhat  unique  competitive  problems  in  terms  of  finding  relatively  close  substitute  programming 
 in  the  event  access  that  is  foreclosed  to  rival  MVPDs. 
 149.  We  also  reject  News  Corp.  s  claim  that  the  key  competitive  harms  associated  with  this  transaction  could  be  inflicted  by  means  of  contractual  arrangements  between  the  companies,  and  that 


 therefore  the  claims  are  not  transaction-  specific.  457  To  the  extent  that  any  behavior  other  than  permanent  foreclosure  is  at  issue,  it  appears  highly  unlikely  that  News  Corp.  and  DirecTV,  as  separate  entities,  could 
 better  manage  and  coordinate  temporary  withholdings  than  they  could  functioning  as  a  single  entity.  Rather  we  agree,  as  JCCs  expert  observes,  that  News  Corp.  cannot  simultaneously  claim  that  the 
 transaction  is  essential  to  the  accomplishment  of  all  of  the  beneficial  efficiencies  identified  in  their  Application,  while  simultaneously  asserting  that  it  is  completely  unnecessary  to  the  imposition  of  the 
 harms  identified  in  the  record.  458 
 150.  Both  Applicants  and  commenters  have  provided  economic  analyses,  which  rely  in  part  on  empirical  data  to  evaluate  whether  News  Corp.,  after  the  transaction,  will  engage  in  some  form  of 


 foreclosure.  459  Applicants  analyses  find  that  they  would  not  profit  from  either  permanent  or  temporary  foreclosure.  460  Commenters  analyses,  in  contrast,  find  that  Applicants  will  have  an  increased  incentive 
 and  ability  to  temporarily  withhold,  or  credibly  threaten  to  withhold,  access  to  their  RSNs.  461 
 151.  In  addition  to  the  studies  submitted  by  the  parties,  Commission  staff  conducted  its  own  economic  analysis.  As  commenters  correctly  observe,  the  increased  ability  of  an  RSN  owner  to  credibly 


 threaten  to  withhold  its  signal,  even  if  it  does  not  actually  do  so,  changes  its  bargaining  position  with  respect  to  MVPDs,  and  could  allow  the  RSN  owner  to  extract  higher  prices,  which  are  ultimately  passed 
 on  to  consumers.  The  staffs  economic  analysis  is  premised  on  the  assumption  that,  if  the  transaction  significantly  enhances  News  Corp.  s  incentive  and  ability  to  withhold  signals  of  its  RSNs  by  lowering  the 
 costs  to  News  Corp.  of  employing  such  bargaining  tactics,  News  Corp.  will  engage  in  such  behavior,  and  that  this  will  result  in  an  increase  of  rival  MVPDs  programming  costs,  and  ultimately  end-  user  prices. 


 456  See  Program  Access  Order,  17  FCC  Rcd  at  121489    54;  FCC,  OPP  Working  Paper  #37,  Broadcast 
 Television:  Survivor  in  a  Sea  of  Competition  at  124  (citing  2000  Video  Competition  Report,  17  FCC  Rcd  at  1354-  1356;  1998  Video  Competition  Report,  13  FCC  Rcd  at  24298-  99  and  24380-  81). 


 457  Applicants  Reply  at  24-  26. 
 458  JCC  Aug.  4,  2003  Ex  Parte  at  10-  11;  Rogerson  Analysis  II  at  22-  25. 
 459  See  Applicants  Reply,  CRA  Analysis;  JCC  Comments,  Rogerson  Analysis  I;  JCC  Aug.  4  Ex  Parte,  Rogerson 
 Analysis  II;  JCC  Sept.  23,  2003  Ex  Parte,  Rogerson  Analysis  III;  Applicants  Sept.  8  Ex  Parte,  Exhibit  1,  Charles  River  Associates,  Inc.,  News  Corp.  s  Partial  Acquisition  of  DirecTV:  A  Further  Economic  Analysis  (  CRA 


 Analysis  II). 
 460  Applicants  Reply,  CRA  Analysis  at    44-  67;  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II  at    4-  29. 


 461  JCC  Comments,  Rogerson  Analysis  at  12-  24;  JCC  Aug.  4,  Ex  Parte  at  Rogerson  Analysis  II;  JCC  Sept.  23  Ex 
 Parte  at  Rogerson  Analysis  III. 
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 Key  to  determining  the  degree  to  which  the  transaction  lowers  News  Corp.  s  costs  of  engaging  in  temporary  foreclosure  is  the  number  of  subscribers  that  can  be  predicted  to  shift  from  the  affected  MVPD 
 to  competitor  DirecTV  to  access  the  foreclosed  programming,  which  in  turn  will  increase  the  profits  of  the  post-  transaction  company  as  a  whole,  over  and  above  levels  achievable  under  todays  conditions. 


 152.  Permanent  Foreclosure.  As  discussed  in  greater  detail  in  Appendix  D,  the  technical  appendix,  the  staffs  economic  analysis  examined  the  potential  profitability  of  both  permanent  and 
 temporary  foreclosure  strategies  for  each  of  News  Corp.  s  RSNs.  Based  upon  the  staffs  analysis,  we  agree  with  Applicants  that  a  strategy  of  permanent  RSN  foreclosure,  assuming  that  it  were  permissible 
 under  the  rules,  would  be  unprofitable  for  News  Corp.  and  therefore  unlikely  to  be  pursued  any  more  frequently  post-  transaction  than  it  is  today.  We  therefore  do  not  find  that  permanent  foreclosure  of  RSN 
 programming  is  likely  to  be  transaction-  specific  harm. 
 153.  Temporary  Foreclosure.  We  also  agree  with  commenters  who  argue  that  a  temporary  foreclosure  strategy  is  likely  to  be  profitable  to  News  Corp.  in  many  instances.  The  staffs  analysis 


 supports  the  further  conclusion  that  this  increase  in  the  profitability  of  temporary  foreclosure  to  News  Corp.  will  make  the  threat  of  withdrawing  programming  a  more  credible  tactic.  By  employing  this  tactic 
 News  Corp.  will  be  able  to  negotiate  higher  prices  than  it  could  absent  its  control  of  DirecTV.  On  this  basis,  we  find  it  likely  that  temporary  foreclosure  will  be  employed  more  frequently  following  News 
 Corp.  s  acquisition  of  control  of  DirecTV  than  it  is  today,  and  that  this  would,  in  turn,  lead  to  greater  programming  price  increases  to  MVPDs  and  higher  subscription  prices  to  consumers  than  we  would 
 expect  to  find  absent  News  Corp.  s  control  of  DirecTV.  Increased  use  of  temporary  foreclosure  strategies  would  thus  harm  competition  and  consumers  by  raising  rivals  costs,  by  amounts  greater  than  those  News 
 Corp.  could  reasonably  expect  to  gain  absent  the  transaction,  thereby  causing  undue  increases  in  MVPD  subscription  prices. 


 154.  The  Applicants  additionally  argue  that  we  should  consider  not  only  how  the  transaction  may  increase  RSN  programming  prices  due  to  temporary  foreclosure,  but  also  how  the  transaction  may 
 lead  to  lower  programming  prices.  Specifically,  the  Applicants  claim  that  the  reduction  in  "double  marginalization"  which  results  from  vertical  integration  "will  create  a  downward  incentive  for  News 
 Corp.  's  programming  prices.  .  .  ."  462 
 155.  We  recognize  and  agree  with  the  theoretical  argument  that  vertical  integration  can  reduce  prices  by  reducing  double  marginalization.  463  In  this  case,  however,  the  Applicants  have  neither 


 attempted  to  quantify  this  benefit  nor  provided  sufficient  information  for  the  Commission  to  quantify  the  benefit.  In  particular,  the  Applicants  have  not  presented  sufficient  information  concerning  the  marginal 
 costs  to  News  Corp.  of  producing  various  types  of  programming  or  the  relevant  demand  elasticities  for  different  types  of  programming  that  are  necessary  for  the  development  of  an  estimate  of  the  magnitude  of 
 this  benefit. 
 156.  Like  the  Applicants,  the  staffs  economic  analysis  of  the  harms  of  permanent  and  temporary  withholding  of  programming,  described  in  the  technical  appendix,  assumes  that  DirecTV's 


 profit  margin  does  not  change  following  the  transaction.  464  We  find  that,  to  the  extent  that  the  elimination 
 462  Applicants'  Sept.  22  Ex  Parte  at  12.  See  also  Applicants'  Reply,  Lexecon  Analysis  at  6;  Applicants  Reply, 
 CRA  Analysis  at  10-  12  &  Appendix  B. 
 463  We  define  double  marginalization  at  para.  70,  supra. 


 464  Appendix  D  at  36. 
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 of  double  marginalization  and  other  efficiencies  will  increase  DirecTV's  profit  margin  on  each  additional  customer,  the  incentives  to  engage  in  permanent  or  temporary  foreclosure  will  be  enhanced,  not  reduced. 
 In  the  absence  of  any  estimates  of  the  impact  of  the  elimination  of  double  marginalization  on  the  prices  of  News  Corp.  programming  to  other  MVPDs  and  how  this  interacts  with  the  increased  incentives  to 
 withhold  when  DirecTVs  profit  margin  increases  due  to  lower  programming  costs,  we  can  only  conclude  that  the  claimed  economic  efficiencies  are  insufficient  to  mitigate  the  harms  we  have  identified. 


 157.  The  results  of  the  staffs  economic  analysis  suggest  that  a  strategy  of  temporarily  withholding  RSN  programming  from  a  cable  operator,  but  not  EchoStar,  would  be  profitable  for  News 
 Corp.  for  a  large  percentage  of  the  cable  systems  that  carry  News  Corp.  RSNs.  465  Specifically,  if  [REDACTED]  of  cable  customers  defect  to  DBS  providers  following  a  one  month  withdrawal  of  an 
 RSN,  News  Corp.  would  find  it  profitable  to  withdraw  RSN  programming  temporarily  from  cable  companies  serving  [REDACTED]  of  RSN  cable  subscribers,  assuming  that  News  Corp.  receives  50%  of 
 DirecTVs  additional  profits.  466  Under  the  assumptions  that  [REDACTED]  of  cable  customers  will  defect  to  a  DBS  provider  and  that  News  Corp.  receives  100%  of  DirecTVs  additional  profits,  then  News 
 Corp.  would  find  it  profitable  to  temporarily  withdraw  RSN  programming  from  cable  companies  serving  [REDACTED]  of  cable  RSN  subscribers.  In  addition,  based  on  staffs  analysis,  we  also  find  it 
 reasonable  to  assume  that  News  incentives  to  temporarily  foreclose  a  RSN  from  EchoStar  are  likely  to  be  even  stronger  than  to  foreclose  from  the  cable  operators.  This  occurs  because,  unlike  the  situation  with 
 cable  operators  where  DirecTV  always  faces  competition  from  EchoStar  for  the  switching  customers,  when  the  RSN  is  removed  from  EchoStar  there  will  be  some  areas  where  the  competing  cable  operator 
 will  not  carry  the  RSN  and  DirecTV  will  be  the  only  source  for  the  RSN.  Furthermore,  in  those  areas  where  DirecTV  would  compete  with  cable  providers  for  customers  defecting  from  EchoStar,  DirecTV 
 would  likely  capture  a  significantly  greater  share  of  the  customers.  As  we  have  found  previously,  consumers  view  EchoStar  and  DirecTV  as  closer  substitutes  for  each  other  than  cable  is  for  either 
 product.  467 
 158.  Examining  the  effect  of  the  withdrawal  of  YES  programming  from  Cablevision,  the  staff  economic  analysis  further  finds  it  likely  that  a  sufficient  number  of  cable  subscribers  will  leave  a  cable 


 company  in  response  to  the  temporary  withdrawal  of  RSN  programming  for  such  a  strategy  to  be  profitable.  We  note  that  Applicants  pointed  to  the  YES  example  to  argue  that  an  insufficient  number  of 
 cable  subscribers  would  defect  in  response  to  a  temporary  withdrawal  of  RSN  programming.  The  staff  performed  an  econometric  analysis  of  DirecTVs  subscriber  gains  during  the  2002  season.  The  results 
 indicate  that  Cablevision  likely  lost  many  more  subscribers  468  than  the  30,000  subscribers  estimated  by 


 465  As  discussed  in  the  technical  appendix,  staff  analyzed  the  incentives  to  withhold  an  RSN  from  a  cable  operator 
 but  not  from  EchoStar  for  two  reasons.  [REDACTED].  In  addition,  staff  did  not  examine  the  incentive  to  temporarily  withhold  a  RSN  from  EchoStar  because,  unlike  the  cable  companies  carrying  a  RSN,  not  all  of 


 EchoStars  competitors  carry  the  RSN.  Some  cable  companies  would  not  carry  the  RSN  and  subscriber  switching  would  heavily  favor  DirecTV  in  those  areas  if  the  RSN  were  withdrawn  for  EchoStar.  In  areas  where  the  cable 
 firm  does  carry  the  RSN,  subscriber  switching  would  not  be  as  favorable  for  DirecTV,  and  the  record  was  insufficient  to  permit  staff  to  distinguish  between  these  two  areas  to  calculate  News  Corp.  s  incentive  to 
 temporarily  withhold  a  RSN  from  EchoStar. 
 466  See  Appendix  D  at    38. 


 467  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  20622-  23    162-  164. 
 468  See  Appendix  D  at    47. 
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 the  Applicants  experts.  469  The  staff  analysis,  in  contrast,  is  based  on  an  econometric  analysis  of  the  number  of  subscribers  that  DirecTV  gained  as  a  result  of  the  temporary  withdrawal  of  YES.  The  staff 
 analysis  estimates  that  DirecTV  gained  a  number  of  subscribers  equal  to  [REDACTED]  of  Cablevisions  customer  base  during  the  first  month  that  New  York  Yankees  games  were  unavailable.  According  to  the 
 results  presented  in  table  A-  5  in  the  technical  appendix,  if  [REDACTED]  of  a  cable  companys  subscribers  switched  to  DBS  during  the  temporary  withdrawal  of  an  RSN,  the  staff  analysis  indicates  that, 
 depending  on  the  assumptions,  between  [REDACTED]  and  [REDACTED]  of  News  Corp.  s  RSN  subscribers  could  be  vulnerable  to  this  tactic  because  News  Corp.  would  find  it  profitable  to  attempt 
 temporary  foreclosures  to  increase  its  RSN  fees. 
 159.  The  staff  analysis  thus  demonstrates  that  News  Corp.,  after  the  transaction,  will  have  an  increased  incentive  and  ability  to  engage  in  temporary  foreclosure  in  order  to  raise  the  price  of  RSN 


 programming.  This  raising  rivals  cost  strategy  is  likely  to  generate  two  types  of  consumer  harm.  First,  and  most  importantly,  temporary  foreclosure  or  the  credible  threat  of  temporary  foreclosure  as  a 
 negotiating  strategy  is  likely  to  result  in  rival  MVPDs  agreeing  to  higher  carriage  fees  or  other  concessions  in  return  for  carriage  of  RSNs  than  they  would  absent  the  transaction,  and  these  fee  increases 
 will  then  be  passed  through  to  MVPD  consumers  in  the  form  of  rate  increases.  Because  the  transaction  effectively  lowers  the  costs  to  News  Corp.  of  temporary  withdrawals  of  its  RSN  programming,  it 
 increases  the  likelihood  and  frequency  of  use  of  this  negotiating  strategy.  Second,  staffs  analysis  demonstrates  that,  to  the  extent  that  News  Corp.  actually  withholds  RSN  programming,  consumers  will 
 lose  access  to  highly  desired  programming  and  some  consumers  will  leave  their  preferred  MVPD  provider  to  access  the  foreclosed  programming  on  a  less-  desired  MVPD  platform.  Consumers  who  have 
 moved  to  an  MVPD  that  requires  a  minimum  service  contract  period  will  be  harmed  because  they  will  be  forced  to  remain  with  their  less  preferred  provider  for  the  term  of  their  contract,  even  though  the  RSN 
 programming  may  have  been  restored  to  their  original  MVPD.  Thus,  temporary  withdrawals  of  RSN  programming  or  threats  to  withdraw  RSN  programming  would  provide  News  Corp.  a  strong,  credible, 
 mechanism  to  extract  higher  rates  for  RSN  programming  from  vulnerable  MVPDs,  and,  as  a  result  of  the  transaction,  News  Corp.  will  find  it  profitable  to  engage  in  temporary  foreclosure  or  will  be  able  to 
 demand  higher  carriage  fees  for  RSNs  based  only  on  the  threat  of  temporary  foreclosure  in  more  instances  than  it  would  today. 


 160.  We  agree  with  commenter  claims  that  this  enhanced  incentive  and  ability  to  engage  in  temporary  foreclosure  will  allow  News  Corp.  to  extract  more  compensation  for  its  regional  sports 
 networks  from  competing  MVPDs  that  it  could  reasonably  expect  to  achieve  absent  the  transaction.  The  potential  public  interest  harms  that  would  result  from  such  a  strategy  are  substantial.  News  Corp.  s 
 ability  to  raise  rivals  costs  in  this  manner  would  harm  consumers  in  different  ways  depending  on  the  type  of  compensation  it  obtains.  When  News  Corp.  secures  carriage  of  other  cable  programming  networks 
 from  MVPDs  in  exchange  for  carriage  of  its  RSNs,  MVPDs  pay  for  those  networks.  If  News  Corp.  can  secure  carriage  of  more  cable  networks  and  charge  higher  fees  for  such  carriage,  these  fees  are  unlikely  to 
 be  absorbed  solely  by  the  MVPDs,  but  would  be  passed  on  to  consumers  in  the  form  of  higher  rates.  If  News  Corp.  uses  withholding  or  threats  of  withholding  in  RSN  carriage  negotiations  to  obtain  carriage  of 
 its  affiliated  cable  networks  that  the  MVPD,  absent  the  threat  of  foreclosure,  would  not  agree  to  carry,  consumers  are  harmed  because  MVPDs  are  forced  to  make  programming  decisions  based  on  News 
 Corp.  s  demands,  rather  than  selecting  the  programming  of  their  choice.  In  the  long  term,  News  Corp.  s  use  of  market  power  to  extract  artificially  high  levels  of  compensation  from  MVPD  rivals,  or  other 
 carriage  concessions,  could  make  rival  MVPDs  less  viable  options  for  consumers,  thus  limiting  consumer 
 469  Applicants  Sept.  8  Ex  Parte,  Lexecon  Analysis  at    25. 
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 choice. 
 161.  Accordingly,  we  find  that  the  primary  public  interest  harm  that  is  likely  to  flow  from  the  combination  of  RSN  programming  and  nationwide  MVPD  distribution  assets  is  the  competitive  harm  of 


 across-  the-  board  price  increases  to  MVPDs  for  carriage  of  News  Corp.  RSNs  and/  or  other  carriage  concessions,  over  and  above  the  level  of  price  increases  or  other  concessions  that  News  Corp.  could 
 otherwise  expect  to  obtain,  through  the  more  frequent  use  of  credible  threats  of  withholding  or  actual  withholding  of  programming.  We  also  find  that  the  transaction  would  result  in  secondary  public  interest 
 harms  by  depriving  subscribers  of  access  to  RSN  programming  during  the  period  of  temporary  foreclosure  or  by  causing  subscribers  to  change  MVPDs  to  access  the  foreclosed  programming,  even 
 where  they  would  otherwise  not  desire  to  change  providers  with  greater  frequency  than  today. 
 162.  In  light  of  the  foregoing  analysis,  we  conclude  that  neither  the  Commissions  existing  rules  nor  the  Applicants  proposed  safeguards  are  sufficient  to  protect  against  harms  caused  by  temporary 


 foreclosure.  We  find,  contrary  to  Applicants  arguments,  that  the  program  access  rules  will  not  adequately  protect  against  this  harm,  because  they  were  not  intended  to  regulate  or  address  the  level  of 
 rates  per  se.  470  Moreover,  we  recognize  that,  even  if  the  program  access  rules  adequately  address  rate  levels  (and  not  just  discrimination),  News  Corp.  would  still  be  able  to  withhold  programming  pending 
 resolution  of  a  program  access  complaint.  471  Because  we  find  that  the  proposed  transaction  poses  likely  consumer  harms  that  will  not  be  adequately  mitigated  by  the  Commissions  existing  rules  or  the 
 Applicants  proposed  conditions,  we  consider  whether  other  conditions  can  mitigate  this  harm  below. 
 (iv)  Conditions 
 163.  Positions  of  the  Parties.  As  explained  above,  in  addition  to  the  existing  program  access  rules,  Applicants  have  proposed  to  undertake  additional  enforceable  program  access  commitments,  472 


 which  they  claim  are  sufficient  to  protect  the  public  interest  against  any  potential  harms  arising  from  the  transaction.  For  the  reasons  stated  in  Section  VI.  C.  3  and  4.  a.,  supra,  we  accept  Applicants  proposed 
 additional  program  access  commitments  and  incorporate  them  in  the  terms  of  our  license  transfer  approval.  And,  as  noted  in  Section  VI.  C.  4.  a,  several  commenters  generally  assert  that,  the  transaction 
 will  increase  News  Corp.  s  incentives  and  ability  to  act  anticompetitively  and  therefore  the  Application  should  be  designated  for  hearing,  denied,  or,  if  approved,  conditioned  to  prevent  such  harms. 
 Commenters  contend  that  neither  the  program  access  rules  nor  the  Applicants  proposed  program  access  commitments  will  adequately  protect  against  potential  harms  arising  from  the  transaction.  473  Many  of  the 


 470  Even  for  analysis  in  the  context  of  an  alleged  unfair  practice,  the  Commission  will  focus  on  whether  the 
 purpose  or  effect  of  the  practice  was  to  hinder  or  harm  the  complainant  relative  to  its  competitors.  Program  Access  First  Report  and  Order,  8  FCC  Rcd  at  3375  n.  26. 


 471  The  Commission  attempts  to  resolve  denial  of  programming  case  (unreasonable  refusals  to  sell,  petitions  for 
 exclusivity,  and  exclusivity  complaints)  within  five  months  of  submission  of  the  complaint.  All  other  program  access  complaints,  including  price  discrimination  cases,  should  be  resolved  within  nine  months  of  the  submission 


 of  the  complaint.  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  13  FCC  Rcd  15822,  15842    41(  1998). 


 472  Application  at  44. 
 473  ACA  Comments  at  16,  20,  23;  JCC  Comments  at  55-  63;  EchoStar  Petition  at  58-  62;  NRTC  Petition  at  20-  22. 
 Letter  from  Jeffrey  A.  Chester,  Executive  Director,  Center  for  Digital  Democracy,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Dec.  3,  2003);  Letter  from  Jeffrey  A.  Chester,  Executive  Director,  Center  for  Digital  Democracy, 


 (continued.) 
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 proposed  arguments  and  conditions  were  lodged  generally  concerning  access  to  all  of  News  Corp.  s  video  programming  products.  We  address  commenters  suggestions  here  to  the  extent  they  have  not  already 
 been  addressed  and  explain  why  we  reject  some  proposed  remedies  and  adopt  others  with  respect  to  access  to  regional  sports  cable  programming. 


 164.  As  we  stated  above,  several  commenters  and  opponents  contend  that  proposed  program  access  commitments  will  not  prevent  News  Corp.  from  raising  the  price,  terms  or  conditions  of 
 programming  above  competitive  levels  by  simply  requiring  DirecTV  to  compensate  News  Corp.  for  its  programming  at  unreasonably  high  prices  with  unreasonably  favorable  terms  of  carriage.  474  These  parties 
 maintain  that  such  a  sweetheart  deal  would  then  establish  unreasonable  terms  for  agreements  with  all  other  MVPDs,  without  harm  to  DirecTV  or  News  Corp.,  because  it  is  effectively  compensating  itself.  475 
 Commenters  and  opponents  are  not  convinced  that  the  Applicants  Audit  Committee  will  be  able  to  monitor  every  term  of  every  agreement  with  an  unaffiliated  MVPD  and  do  not  consider  the  committee  as 
 a  sufficient  guard  against  the  threat  of  unreasonable  terms.  476  ACA  contends  that  the  proposed  commitment  does  not  prevent  News  Corp.  from  offering  different  or  more  costly  terms  to  small  cable 
 operators,  because  although  the  commitment  requires  nondiscrimination,  News  Corp.  is  likely  to  offer  the  same  prices/  terms/  conditions  only  to  MVPDs  with  as  many  subscribers  as  DirecTV.  477 


 165.  To  remedy  the  claimed  deficiencies  in  the  conditions  proposed  by  Applicants,  parties  urge  the  Commission  to  adopt  several  revisions  and  additions.  ACA  urges  the  Commission  to  seek  an 
 enforceable  commitment  from  Applicants  that  News  Corp.  will  not  use  programming  prices,  terms  and  conditions  to  disadvantage  smaller  market  cable  companies.  478  In  addition,  ACA  argues  that  News  Corp. 
 should  be  required  to  offer  all  News  Corp.-  controlled  satellite  programming  to  the  National  Cable  Television  Cooperative  (  NCTC)  or  other  recognized  programming  buying  group  on  the  same  effective 
 prices,  terms  and  conditions  as  News  Corp.  offers  such  programming  to  DirecTV.  479  To  effectuate  this  condition,  ACA  suggests  that  News  Corp.  be  required  to  disclose  to  the  NCTC  and  the  Commission  all 
 effective  prices,  terms,  conditions  and  agreements  of  any  kind  related  to  the  sale  of  News  Corp.  -controlled  programming  to  DirecTV.  480  EchoStar  urges  that  we  require  News  Corp.  to  supply 
 programming  to  MVPDs  on  a  separate  basis  (i.  e.,  no  bundling),  publish  a  rate  card  showing  its  fees  for  all  MVPDs  with  a  discount  rate  structure  approved  in  advance  by  the  Commission,  and  provide  the 


 (Continued  from  previous  page)  to  Marlene  H.  Dortch,  Secretary,  FCC  (Dec.  9,  2003);  Letter  from  Jeffrey  A.  Chester,  Executive  Director,  Center 
 for  Digital  Democracy,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Dec.  11,  2003). 
 474  EchoStar  Petition  at  23-  24;  NRTC  Petition  at  21;  JCC  Comments  at  59-  63;  CFA  Reply  Comments  at  5-  6. 


 475  EchoStar  Petition  at  23-  24;  NRTC  Petition  at  21;  JCC  Comments  at  59-  63;  CFA  Reply  Comments  at  5. 
 476  JCC  Comments  at  59-  63;  Letter  from  Consumers  Union  to  Marlene  H.  Dortch,  Secretary,  FCC  (Sept.  23,  2003) 
 (  Consumers  Union  Sept.  23,  2003  Ex  Parte)  at  5-  6. 
 477  ACA  Comments  at  19. 


 478  ACA  Comments  at  20-  21;  ACA  Oct.  17,  2003  Ex  Parte  at  Exhibit  A,  Page  2. 
 479  ACA  Oct.  17,  2003  Ex  Parte  at  Exhibit  A,  Page  2. 
 480  ACA  Oct.  17,  2003  Ex  Parte  at  Exhibit  A,  Page  2. 
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 Commission  with  separate  accounting  records  for  its  programming  and  distribution  businesses,  showing  that  the  rates  paid  by  DirecTV  are  not  so  high  that  DirecTV  cannot  make  a  reasonable  profit.  481 
 166.  Pegasus  urges  that  we  add  the  following  requirements  designed  to  supplement  those  proposed  by  Applicants:  (a)  contracts  between  Fox  and  DirecTV  would  have  to  be  approved  by  a 
 majority  of  the  independent  directors  of  DirecTV  and  parent  Hughes;  (b)  all  contracts  between  Fox  and  DirecTV  would  be  filed  with  the  Commission  and  available  to  the  public;  (c)  the  economic  terms  of  any 
 contract  between  Fox  and  DirecTV  would  have  to  be  set  at  the  average  of  those  charged  to  Foxs  three  largest,  non-  affiliated  MVPDs.  The  CEO  and  directors  of  Fox,  DirecTV,  and  Hughes  would  be  required 
 to  certify  compliance  with  these  conditions  annually.  Pegasus  asserts  that  these  conditions  should  apply  for  a  period  of  five  years.  482  EchoStar  proposes  that  we:  prohibit  satellite  exclusives  of  any  kind  for 
 News  Corp.  programming;  apply  the  requirement  to  programming  delivered  terrestrially;  make  the  program  access  condition  permanent;  apply  the  access  condition  to  Libertys  programming  assets;  clarify 
 that  the  nondiscrimination  requirement  applies  to  all  non-  price  terms;  require  News  Corp.  to  offer  all  programming  separately,  at  published  rates  that  are  pre-  approved  by  the  Commission.  483 


 167.  Other  parties  urge  the  Commission  to  adopt  several  revisions  and  additions  specifically  applicable  to  RSN  programming.  In  instances  where  News  Corp.  and  an  MVPD  fail  to  negotiate  and 
 enter  into  a  license  agreement  for  carriage  of  an  RSN  upon  mutually  agreeable  terms  and  conditions,  JCC  urge  imposition  of  a  condition  that  prohibits  News  Corp.  from  refusing  to  make  available  or  conditioning 
 the  availability  or  carriage  terms  of  an  RSN  it  controls  to  any  MVPD  on  whether  that  MVPD  or  any  other  MVPD  agrees  to  carry  any  other  News  Corp.  owned,  controlled  or  affiliated  video  programming  service 
 or  television  broadcast  station.  484  Under  the  JCC  proposal,  News  Corp.  would  additionally  be  permitted  to  offer  a  license  agreement  for  a  News  Corp.  RSN  with  fees,  terms  and  conditions  based  upon  an 
 MVPDs  transmission  or  distribution  of  such  News  Corp.  RSN  on  the  MVPDs  most  popular  tier  of  service.  However,  prior  to  taking  any  action  to  deauthorize  or  cause  removal  of  an  News  Corp.  RSN 
 from  any  MVPDs  package  of  video  programming  services  offered  to  any  of  its  subscribers,  News  Corp.  must  also,  upon  request  by  any  MVPD,  make  a  good  faith  offer  that  enables  the  MVPD  to  carry  and  pay 
 license  fees  for,  such  News  Corp.  RSN  based  upon  (a)  distribution  in  an  existing  or  a  proposed  service  tier  other  than  the  MVPDs  most  popular  tier  of  service;  and  (b)  distribution  on  a  stand-  alone,  a  la  carte 
 basis.  485  JCC  further  propose  that  enforcement  of  such  requirements  would  be  handled  through  complaint  to  the  Commission  by  an  MVPD  who  believes  that  News  Corp.  has  violated  this  condition.  During  the 
 pendency  of  the  complaint,  JCC  propose  that  News  Corp.  be  prohibited  from  deauthorizing  or  causing  the  removal  of  the  RSN  programming  from  the  aggrieved  MVPDs  package  of  video  programming  services 
 offered  to  its  subscribers.  Additionally,  JCC  propose  that  the  Commission  place  the  burden  of  proof  on 


 481  EchoStar  Petition  at  66.  EchoStar  notes  that  News  Corp.  s  affiliate  BSkyB  has  agreed  to  such  conditions  in  the 
 United  Kingdom.  Id. 
 482  See  Pegasus  Sept.  30,  2003  Ex  Parte;  Pegasus  Dec.  10,  2003  Ex  Parte. 


 483  EchoStar  Petition  at  64-  66.  JCC  and  NRTC  also  support  a  program  access  condition  that  does  not  sunset  with 
 the  program  access  rules.  JCC  Comments  at  65;  NRTC  Petition  at  20-  21. 
 484  JCC  Reply  Comments  at  18-  19;  Letter  from  Christopher  J.  Harvie,  Mintz,  Levin,  Cohn,  Ferris,  Glovsky  and 
 Popeo,  PC,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Aug.  18,  2003)  (  JCC  Aug.  18,  2003  Ex  Parte)  Attachment  at  4. 


 485  See  JCC  Aug.  18,  2003  Ex  Parte  Attachment  at  4. 
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 News  Corp.  to  establish  that  its  good  faith  offer  provides  a  genuine  choice  to  the  MVPD  without  imposing  unreasonable  conditions  on  tier  carriage.  RCN  supports  the  proposals  of  the  JCC,  noting  that  to 
 the  extent  that  large  incumbent  MSOs  may  be  harmed  by  the  anticompetitive  conduct  of  post-  transaction  News  Corp.,  RCN  is  in  even  greater  jeopardy.  486 


 168.  We  note  here  that  the  JCC  proposed  a  somewhat  different  remedy  for  potential  temporary  foreclosure  of  access  to  local  broadcast  television  station  signals  during  retransmission  consent 
 negotiations  which  involves  sending  disputes  to  commercial  arbitration  that  is  discussed  in  Section  VI.  C.  4.  c.  Because  we  are  adopting  the  arbitration  remedy  for  both  forms  of  must  have  programming, 
 we  first  explain  JCCs  rationale  in  this  section.  JCC  urge  the  Commission  to  prevent  News  Corp.  from  using  DirecTV  to  strengthen  its  leverage  and  pricing  power  in  retransmission  consent  negotiations  by, 
 inter  alia,  establishing  a  last  offer  arbitration  mechanism  that  is  designed  to  reduce  News  Corp.  s  post  transaction  incentive  to  force  competing  MVPDs  to  choose  between  paying  higher  prices  and  carrying 
 new  Fox  channels  in  order  to  retain  access  to  existing  Fox  broadcast  content,  or  ceding  that  content  to  their  most  powerful  MVPD  competitor    DirecTV.  487  JCC  explain  that  the  arbitration  mechanism  is 
 intended  to  serve  as  a  fair  and  neutral  backstop  for  resolving  carriage  disputes  and  will  thereby  reduce  News  Corp.  s  post-  transaction  incentive  and  ability  to  threaten  or  inflict  carriage  disruptions  on 
 subscribers  of  rival  MVPDs  as  a  means  of  extracting  supra-  competitive  prices  and  unfair  concessions  in  carriage  negotiations  for  local  broadcast  stations.  The  end  result  of  having  the  arbitration  backstop 
 mechanism,  they  claim,  should  be  to  reduce  the  otherwise  likely  increase  in  service  interruptions  and  retransmission  consent  disputes  arising  from  the  transaction.  Both  sides,  they  allege,  will  have  an 
 incentive  to  negotiate  reasonably  and  conclude  a  mutually  agreeable  arrangement,  rather  than  face  the  prospect  of  having  an  arbitrator  select  one  party  or  the  others  last  offer.  488 


 169.  Discussion.  We  agree  with  commenters  that  both  the  program  access  rules  and  the  Applicants  proposed  program  access  commitment  are  insufficient  to  protect  against  harms  arising  from 
 News  Corp.  s  enhanced  incentive  and  ability  to  use  its  market  power  in  the  market  for  regional  sports  programming  to  the  detriment  of  consumers.  Accordingly,  we  will  modify  and  supplement  Applicants 
 proposed  conditions  and  condition  the  license  transfer  to  ensure  that  the  transaction  minimizes  the  possibility  of  harm  while  preserving  the  overall  benefits  to  the  public. 


 170.  The  concerns  that  many  commenters  generally  raise  with  respect  to  News  Corp.  s  incentive  to  discriminate  or  otherwise  disadvantage  rival  MVPDs  in  the  terms  and  conditions  of  the 
 carriage  of  all  of  its  video  programming  following  the  transaction  include  News  Corp.  s  RSN  programming.  Commenters  have  also  suggested  certain  conditions  under  the  assumption  that  News  Corp. 
 has  no  incentive  to  behave  anti-  competitively  towards  DirecTV  and  therefore  the  rates  charged  to  DirecTV  can  be  used  as  a  benchmark  for  the  rates  charged  to  rival  MVPDs.  However,  as  explained  in 
 preceding  Section  C.  4.  a,  we  found  that  many  of  the  suggested  additional  conditions  were  already  covered  by  Applicants  offer,  were  not  transaction  specific,  were  calculated  to  remedy  harms  that  we  have 
 determined  are  unlikely  to  occur,  would  not  adequately  remedy  the  likely  harms  of  the  transaction,  or  would  leave  Applicants  in  a  worse  position  following  the  transaction  than  they  are  today.  489  As  we  stated 


 486  RCN  Oct.  24,  2003  Ex  Parte  at  7-  8. 
 487  JCC  Aug.  18,  2003  Ex  Parte  Attachment  at  6. 
 488  Id. 
 489  For  example,  EchoStar  proposes  that  program  access  requirements  be  extended  to  apply  to  Liberty  Medias 
 programming  assets  and  to  programming  that  Congress  did  not  choose  to  subject  to  the  rules  and  that  News  Corp.  (continued.) 
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 in  Section  VI  C.  4.  a,  an  application  for  a  transfer  of  control  of  Commission  licenses  is  not  an  opportunity  to  correct  any  and  all  perceived  imbalances  in  the  industry.  In  contrast,  in  the  case  of  must  have  RSNs, 
 the  very  existence  of  the  program  access  non-  discrimination  rules  may  create  the  perverse  incentive  for  News  Corp.  to  charge  excessive  rates  for  RSNs  to  DirecTV,  in  order  for  Applicants  to  disguise  News 
 Corp.  s  behavior  towards  rival  MVPDs.  As  we  have  found,  the  de  facto  control  of  DirecTV  by  News  Corp.  ensures  that  DirecTV  will  accept  these  rates,  and  rather  than  responding  by  raising  its  prices,  will 
 act  in  a  manner  that  maximizes  the  joint  profits  of  the  Applicants  by  holding  its  rates  steady.  This  will  enable  DirecTV  to  take  advantage  of  its  rivals  response  to  their  increased  costs  with  rate  increases,  and 
 permit  DirecTV  to  gain  market  share.  We  believe  that  the  same  close  coordination  between  News  Corp.  and  DirecTV  necessary  to  obtain  many  of  the  proposed  benefits  of  the  transaction  ensures  that  the  gains 
 from  the  strategy  of  raising  rivals  costs  can  be  obtained  and  equitably  distributed  between  the  shareholders  of  the  two  firms. 


 171.  We  adopt  none  of  the  suggested  conditions,  however,  either  in  whole  or  as  stand-  alone  remedies  for  the  particular  harms  that  we  have  identified  regarding  access  to  RSN  programming.  Many 
 of  the  proposed  conditions  attempt  to  remedy  the  harms  we  have  identified,  but  in  our  opinion  would  either  fail  to  do  so  or  would  place  the  Applicants  at  a  disadvantage  relative  to  their  positions  prior  to  the 
 transaction.  For  example,  the  proposed  non-  discrimination  conditions  standing  alone  are  flawed  because  DirecTV  has  a  national  footprint  which  renders  all  other  MVPDs  direct  rivals  of  the  integrated  firm,  and 
 therefore  there  are  no  programming  transactions  to  use  as  a  benchmark  in  determining  if  a  particular  transaction  is  discriminatory.  JCCs  proposal  that  News  Corp.  be  required  to  make  a  good-  faith  offer  that 
 enables  MVPDs  to  carry  its  RSNs  on  an  a  la  carte  basis  or  on  an  existing  or  proposed  programming  tier  other  than  the  MVPDs  most  popular  tier  places  News  Corp.  in  a  worse  competitive  situation  than  it  was 
 prior  to  the  transaction.  In  addition,  this  condition  would  place  News  Corp.  at  a  distinct  disadvantage  relative  to  other  cable  programmers  when  bidding  to  renew  or  acquire  additional  sports  rights.  Instead, 
 we  use  selected  aspects  of  remedies  proposed  by  various  commenters  with  respect  to  both  RSN  and  broadcast  programming  to  fashion  a  hybrid  approach  to  the  temporary  foreclosure  problem  that  should 
 ensure  that  the  Applicants  are  able  to  realize  the  economic  efficiencies  associated  with  the  acquisition,  while  adequately  mitigating  the  transaction-  specific  harms  likely  to  arise  as  a  result. 


 172.  Conditions.  Our  analysis  demonstrates  that  the  primary  public  interest  harm  likely  to  follow  from  the  unique  combination  of  News  Corp.  s  RSN  programming  assets  and  DirecTVs 
 nationwide  distribution  platform  is  the  competitive  harm  of  an  across-  the-  board  MVPD  price  increase  resulting  from  News  Corp.  s  ability  to  extract  rents  or  other  unfair  carriage  concessions  from  MVPDs  for 
 carriage  of  RSN  programming  through  the  more  frequent  use  of  threats  of  withholding  or  actual  withholding  of  RSN  programming  during  a  period  of  temporary  foreclosure.  A  secondary  public  interest 
 harm  is  that  MVPD  subscribers  are  deprived  of  programming  that  is  highly  desired  during  such  a  period. 
 173.  We  agree  with  the  JCC  that  a  neutral  dispute  resolution  forum  would  provide  a  useful  backstop  to  prevent  News  Corp.  from  exercising  its  increased  market  power  to  force  rival  MVPDs  to 


 either  accept  inordinate  affiliate  fee  increases  for  access  to  RSN  programming  and/  or  other  unwanted  programming  concessions  or  potentially  to  cede  critical  content  to  their  most  powerful  DBS  competitor, 
 DirecTV.  We  therefore  create  a  mechanism  whereby  an  aggrieved  MVPD  may  choose  to  submit  a 
 (Continued  from  previous  page)  be  limited  to  offering  programming  at  published  rates  that  are  preapproved  by  the  Commission.  See  EchoStar 
 Petition  at  64-  66.  Pegasus  suggests  that  we  impose  specialized  corporate  governance  rules  and  FCC  filing  requirements  on  all  contracts  between  Fox  and  DirecTV  for  a  period  of  five  years.  See  Pegasus  Sept.  30,  2003  Ex 
 Parte. 
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 dispute  with  News  Corp.  over  the  terms  and  conditions  of  carriage  of  RSNs  to  commercial  arbitration  to  constrain  News  Corp.  s  increased  incentive  to  use  temporary  foreclosure  strategies  during  carriage 
 negotiations  for  RSN  programming  in  each  region  in  which  News  Corp.  owns  or  holds  a  controlling  interest  or  manages  any  non-  broadcast  RSN,  and  require  News  Corp.  to  permit  the  MVPD  to  continue  to 
 carry  the  RSN  while  the  dispute  is  being  resolved. 
 174.  By  requiring  commercial  arbitration  where  negotiations  fail  to  produce  a  mutually  acceptable  set  of  prices,  terms  and  conditions,  we  reduce  the  incentives  and  opportunities  for  News  Corp. 


 to  remove  programming  and  thus  eliminate  the  additional  credibility  of  programming  withdrawal  as  a  bargaining  tool.  Our  arbitration  condition  is  also  intended  to  push  the  parties  towards  agreement  prior  to 
 a  complete  breakdown  in  negotiations.  Final  offer  arbitration  has  the  attractive  ability  to  induce  two  sides  to  reach  their  own  agreement,  lest  they  risk  the  possibility  that  a  relatively  extreme  offer  of  the  other 
 side  may  be  selected  by  the  arbitrator.  490 
 175.  Thus,  our  remedy  is  to  allow  MVPDs  to  demand  commercial  arbitration  when  they  are  unable  to  come  to  a  negotiated  fair  price  for  the  programming.  The  staff  analysis  has  found  that  the 


 allure  of  temporary  withholding  to  News  Corp.  is  substantial,  even  after  the  ability  invariably  to  obtain  supracompetitive  affiliate  fee  increases  is  eliminated.  Accordingly  we  do  not  allow  News  Corp.  to 
 deauthorize  carriage  of  the  RSN  after  an  MVPD  has  chosen  to  avail  itself  of  the  arbitration  condition.  We  also  specify  that  expedited  arbitration  procedures  be  used  and  that  the  final  offers  submitted  to  the 
 arbitrator  by  each  side  may  not  include  any  compensation  for  RSN  carriage  in  the  form  of  the  MVPDs  agreement  to  carry  any  video  programming  networks  or  any  other  service  other  than  the  RSN. 


 176.  In  addition,  we  agree  with  ACA  to  the  extent  that  it  argues  that  small  and  medium-  sized  MVPDs  may  be  at  particular  risk  of  temporary  foreclosure  strategies  aimed  at  securing  supra-  competitive 
 programming  rate  increases  for  must  have  programming  such  as  RSNs  following  News  Corp.  s  acquisition  of  control  of  DirecTV.  Given  the  size  of  their  subscriber  base  and  financial  resources,  small 
 and  medium-  sized  MVPDs  may  also  be  far  less  able  to  bear  the  costs  of  commercial  arbitration,  even  on  an  expedited  basis,  than  large  MVPDs,  thus  rendering  the  remedy  of  less  value  to  them.  To  counter-balance 
 the  increase  in  News  Corp.  market  power  with  respect  to  RSN  programming  following  the  transaction,  and  to  provide  all  MVPDs  a  useful  procedure,  we  specify  that  an  MVPD  meeting  the 
 definition  of  small  cable  company  may  choose  to  appoint  a  bargaining  agent  to  bargain  collectively  on  its  behalf  in  negotiating  for  carriage  of  regional  sports  networks  with  News  Corp.,  and  News  Corp.  may 
 not  refuse  to  negotiate  carriage  of  RSN  programming  with  such  an  entity.  491  The  designated  collective  bargaining  entity  will  have  all  the  rights  and  responsibilities  granted  by  our  arbitration  conditions. 


 177.  The  following  procedures  shall  be  followed: 
 Commercial  Arbitration  Remedy 


 490  Steven  J.  Brams,  Negotiation  Games:  Applying  Game  Theory  to  Negotiation  and  Arbitration,  Routledge,  2003 
 at  264. 
 491  The  Commission  has  previously  defined  small  cable  companies  as  those  with  400,000  or  fewer  subscribers. 
 We  adopt  that  definition  for  the  purposes  of  this  condition.  See  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  10  FCC  Rcd  7393,  7394-  95  (1995). 
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 178.  No  later  than  20  business  days  prior  to  the  expiration  of  an  affiliation  agreement  with  an  MVPD  for  video  programming  subject  to  this  condition,  News  Corp.  must  provide  the  MVPD  with  a 
 copy  of  the  conditions  imposed  in  this  Order.  News  Corp.  must  provide  a  copy  of  the  conditions  imposed  in  this  Order  within  10  business  days  of  receiving  a  first  time  request  for  affiliation. 


 179.  The  markets  and  technologies  used  in  the  provision  of  MVPD  services  and  video  programming  continue  to  evolve  over  time,  rendering  accurate  predictions  of  future  competitive 
 conditions  difficult.  Accordingly,  the  conditions  concerning  RSN  carriage  shall  cease  to  be  effective  six  years  after  the  release  of  this  Order.  494  The  Commission  will  consider  a  petition  for  modification  of  this 
 condition  if  it  can  be  demonstrated  that  there  has  been  a  material  change  in  circumstance  or  the  conditions  have  proven  unduly  burdensome,  rendering  the  condition  no  longer  necessary  in  the  public  interest. 


 c.  Access  to  Broadcast  Television  Station  Signals 
 (i)  Background 
 180.  Through  its  subsidiary  Fox  Television  Stations,  Inc.  (  FTS),  News  Corp.  owns  and  operates  35  television  broadcast  stations  (the  O&  Os)  located  in  26  DMAs,  495  most  of  which  are 


 affiliated  with  either  the  Fox  or  UPN  networks.  496  In  addition  to  the  O&  Os,  the  Fox  Network  has  affiliation  agreements  with  171  independently  owned,  television  broadcast  stations.  497  News  Corp.  s 
 television  broadcast  stations  are  carried  on  every  cable  system  in  their  DMAs  pursuant  to  (1)  retransmission  consent  agreements;  (2)  informal  agreements  for  carriage  without  compensation  pending 
 agreement  negotiations;  or  (3)  in  a  few  cases,  must-  carry.  498  In  addition,  DirecTV  and  EchoStar  carry  the  News  Corp.  O&  Os  in  every  market  where  the  operators  offer  local-  into-  local  service.  499  Today,  the  Fox 
 Network  originates  some  of  the  most  popular  programming  on  broadcast  television.  500  The  vast  majority 
 494  The  six-  year  period  is  parallel  to  that  for  the  analogous  condition  on  retransmission  consent. 


 495  Application  at  63. 
 496  Twenty-  five  of  these  stations  are  affiliated  with  the  Fox  network,  nine  are  affiliated  with  the  United  Paramount 
 network,  and  one  station,  KDFI,  Dallas,  Texas,  is  not  affiliated  with  any  network.  Application  at  63. 
 497  See  FEG  10-  K  2003  Annual  Report  at  7. 


 498  Applicants  Reply  at  46-  47;  July  28  Response  at  23.  Applicants  report  that  KTXH  elected  must-  carry  on  all 
 cable  systems.  July  28  Response  at  23.  WUTB,  WDCA,  and  WPWR  elected  must-  carry  with  respect  to  some  MVPDs,  including  DirecTV  in  one  case.  Id. 


 499  Application  at  63. 
 500  The  Fox  Network  delivers  15  hours  of  prime-  time  programming  per  week  and  one  hour  of  late-  night 
 programming  on  Saturday  to  its  affiliates.  FEG  10-  K  2003  Annual  Report.  The  Fox  Networks  has  developed  a  reputation  for  originating  popular  shows,  and  in  particular  reality  shows.  For  example,  the  season  finales  of  Foxs 


 reality  shows  Joe  Millionaire  and  American  Idol  were  the  two  most  popular  entertainment  programs  during  the  last  television  season,  drawing  40  million  and  38.  1  million  viewers  respectively.  Cablevision  Comments  at  13.  Fox 
 programming  is  especially  appealing  to  adults  aged  to  18  to  49,  an  age  group  that  commenters  contend  is  most  often  targeted  by  advertisers.  Id.  at  14.  According  to  one  News  Corp.  investor  presentation,  prime  time  ratings  for 
 viewing  of  Fox  Network  programming  by  adults  aged  18-  49  increased  by  14%  from  May  2002  to  May  2003,  while  the  ratings  of  competing  broadcast  networks  declined  or  remained  static.  See  News  Corp.,  Merrill  Lynch  Media  and 
 Entertainment  Conference,  Investor  Presentation,  at  http://  www.  newscorp.  com/  investor/  download/  MerrillLynch2003/  sld0023.  htm  (visited  Dec.  19,  2003). 
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 of  News  Corp.  O&  Os  choose  retransmission  consent  over  must  carry.  501  In  this  manner,  the  stations  bargain  with  MVPDs  for  compensation  in  exchange  for  the  right  to  retransmit  their  broadcast  signal. 
 Although  the  bargaining  may  encompass  many  issues,  it  is  ultimately  about  the  price  an  MVPD  is  willing  to  pay  for  carriage  of  the  local  broadcast  station,  502  and  although  that  price  may  be  in  the  form  of 
 monetary  compensation,  it  is  more  likely  to  be  structured  in  the  form  of  an  in  kind  payment  whereby  the  MVPD  provides  channel  capacity  for  a  broadcast  networks  affiliated  cable  programming  network 
 and/  or  other  carriage-  related  concessions.  503  As  we  have  previously  recognized,  the  process  was  intended  to  provide  incentives  for  both  parties  to  come  to  mutually  beneficial  arrangements.  504  We  have 
 additionally  recognized  that  retransmission  consent  negotiations  .  .  .  are  the  market  through  which  the  relative  benefits  and  costs  to  the  broadcaster  and  the  MVPD  are  established.  505  Both  programmer  and 
 MVPD  benefit  when  carriage  is  arranged:  the  station  benefits  from  carriage  because  its  programming  and  advertising  will  likely  reach  more  households  when  carried  by  MVPDs  than  otherwise,  and  the  MVPDs 
 benefit  because  the  stations  programming  adds  to  the  attraction  of  the  MVPD  subscription  to  consumers.  506  Thus,  the  local  television  broadcaster  and  the  MVPD  negotiate  in  the  context  of  a  roughly 
 even  balance  of  terror  in  which  the  failure  to  resolve  local  broadcast  carriage  disputes  through  the  retransmission  consent  process  potentially  damages  each  side  greatly  in  their  core  business  endeavor. 


 181.  In  addition  to  this  marketplace  reality,  both  MVPDs  and  broadcasters  appear  convinced  that  the  rules  offer  the  other  significant  protections.  For  example,  JCC  argue  that  a  cable  operators  only 
 potential  source  of  bargaining  power  in  retransmission  consent  negotiations  with  a  broadcast  stations  is  the  ability  to  decide  not  to  carry  the  signal  of  that  station,  an  ability  that  is  restricted  by  both  rule  and 
 practical  reality,  since  it  is  the  cable  operator  that  bears  the  brunt  of  any  public  fall-  out  arising  from  a  failure  to  reach  agreement  with  a  broadcast  station,  and  the  broadcast  station  also  has  the  protection  of  the 
 must  carry  provisions.  507  Broadcasters  receive  additional  protections  in  retransmission  consent  negotiations,  according  to  JCC,  by  means  of  the  Network  Non-  Duplication  rule  508  and  the  Syndicated 
 Exclusivity  rule,  509  which  they  claim  make  obtaining  a  substitute  for  the  local  broadcast  station  signal  difficult  for  cable  operators  because,  under  Commission  rule,  stations  electing  retransmission  consent 


 501  See  Application  at  63.  This  is  also  true  for  Fox  affiliates.  See  NAB  Comments  at  19. 
 502  See,  e.  g.,  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of 
 1992,  9  FCC  Rcd  1164,  1212-  14    91-  93  (1993);  JCC  Comments  at  18. 
 503  See  Good  Faith  Negotiations  Order,  15  FCC  Rcd  at  5462    38. 


 504  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992;  Broadcast  Signal 
 Carriage  Issues,  9  FCC  Rcd  6723    115  (1994). 
 505  See  Applicants  Reply  at  44;  Good  Faith  Negotiations  Order,  15  FCC  Rcd  at  5448    8. 


 506  See  Applicants  Reply  at  44-  45. 
 507  JCC  Comments  at  19  and  n.  34  (citing  47  U.  S.  C.  534(  b)(  9);  47  C.  F.  R.    76.1601,  Note  1  (2002)  (prohibiting 
 deletion  or  repositioning  of  a  local  commercial  television  station  during  the  four  national  four-  week  ratings  periods  or  audience  sweeps);  In  the  Matter  of  Time  Warner  Cable;  Emergency  Petition  of  ABC,  Inc.  for 


 Declaratory  Ruling  and  Enforcement  Order  for  Violation  of  Section  76.58  of  the  Commissions  Rules,  or  in  the  Alternative  for  Immediate  Injunctive  Relief,  15  FCC  Rcd  7882  (2002)). 


 508  47  C.  F.  R.    76.92. 
 509  47  C.  F.  R.    76.101. 
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 may  assert  network  nonduplication  and  syndicated  exclusivity  protection.  510  Applicants,  for  their  part,  similarly  claim  that  MVPDs  enjoy  significant  protections  in  the  retransmission  consent  process  under 
 Commission  rules.  First,  they  note,  a  broadcast  station  may  not  grant  retransmission  consent  to  any  MVPD  on  an  exclusive  basis.  511  Second,  a  broadcast  station  has  an  affirmative  obligation  to  negotiate  in 
 good  faith  with  all  MVPDs  seeking  retransmission  consent,  and  MVPDs  are  under  no  reciprocal  good  faith  obligation.  512  Third,  Applicants  claim  that  although  stations  may  enter  into  retransmission  consent 
 agreements  with  different  MVPDs  containing  different  terms  and  conditions,  including  price  terms,  such  differences  must  be  based  on  competitive  market  conditions  and  in  determining  the  kinds  of  agreements 
 that  are  presumptively  not  consistent  with  competitive  market  consideration,  the  Commission  includes  those  the  effect  of  which  is  to  hinder  significantly  or  foreclose  MVPD  competition.  513  Finally, 
 Applicants  observe  that  an  aggrieved  MVPD  may  bring  a  complaint  against  a  broadcast  station  based  not  only  upon  actions  that  the  Commission  has  identified  as  per  se  evidence  of  bad  faith,  but  also  based  on 
 any  other  factors  that  support  such  an  inference  under  a  totality  of  circumstances  test.  514  It  is  against  this  backdrop  that  we  evaluate  the  parties  claims  with  respect  to  the  effect  of  this  transaction. 


 (ii)  Positions  of  the  Parties 
 182.  Applicants  assert  that  the  transaction  creates  no  incentive  for  News  Corp.  to  withhold  the  broadcast  signals  of  its  O&  Os  from  other  MVPDs.  Applicants  further  assert  that,  although  retransmission 


 consent  negotiations  are  sometimes  difficult,  News  Corp.  has  never  failed  to  reach  a  mutually  acceptable  agreement  with  any  MVPD.  515  Because  national,  regional,  and  local  advertisers  seek  maximum  reach, 
 Applicants  claim  that  it  is  essential  for  Fox  and  other  broadcast  networks  to  come  as  close  as  possible  to  100%  audience  reach.  516  They  further  claim  that  because  advertising  is  the  sole  revenue  source  in  the 
 broadcast  network  business,  audience  reach  is  even  more  critical  for  the  success  of  broadcast  stations  than  it  is  for  cable  networks,  which  are  partly  supported  by  subscriber  fees.  517  They  add  that  audience  reach 
 within  each  DMA  also  is  critical  to  securing  local  and  regional  advertising.  According  to  the  Applicants,  the  need  to  secure  advertising  makes  it  economically  irrational  to  restrict  access  to  O&  O  signals  in  the 
 hopes  of  gaining  DirecTV  subscribers.  518 


 510  JCC  Comments  at  20  (citing  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition 
 Act  of  1992;  Broadcast  Signal  Carriage  Issues,  9  FCC  Rcd  6723  at    114  (1994)). 
 511  Applicants  Reply  at  45;  47  C.  F.  R.    76.64(  l). 


 512  Applicants  Reply  at  45;  47  C.  F.  R.    76.65. 
 513  Applicants  Reply  at  45  (citing  Good  Faith  Negotiations  Order,  15  FCC  Rcd  at  5470    58). 
 514  Applicants  Reply  at  45;  47  C.  F.  R.    76.65(  b). 
 515  Application  at  63. 
 516  Application  at  64.  Applicants  note  that,  because  15  of  the  35  O&  Os  are  UHF  stations,  which  receive  less  over-the- 
 air  coverage,  distribution  of  its  signals  on  all  MVPD  platforms  is  particularly  important.  Id.  at  n.  105.  Applicants  assert  that,  if  News  Corp.  lost  carriage  of  Fox  network  programming  on  even  a  small  number  of 


 systems,  it  would  risk  being  perceived  by  advertisers  as  a  second-  class  outlet  compared  to  ABC,  CBS  or  NBC,  and  would  no  longer  be  able  to  command  comparable  advertising  rates.  Applicants  Reply  at  40. 


 517  Application  at  64. 
 518  Application  at  64. 
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 183.  Applicants  further  contend  that  even  if  News  Corp.  sought  to  withhold  access  to  broadcast  signals,  the  Commissions  rules  requiring  good  faith  negotiation  and  prohibiting  exclusive 
 retransmission  consent  agreements  would  prevent  News  Corp.  from  using  retransmission  consent  to  undermine  DirecTVs  MVPD  rivals.  519  Applicants  assert  that  withholding  broadcast  signals  also  would 
 hurt  News  Corp.  by  reducing  retransmission  consent  compensation,  including  compensation  for  News  Corp.  s  cable  programming  services.  520 


 184.  Commenters  counter  that  by  giving  News  Corp.  s  Fox  Network  guaranteed  access  to  national  distribution  via  DirecTV,  the  transaction  will  increase  the  incentive  and  ability  of  News  Corp.  to 
 withhold  retransmission  consent  temporarily,  to  the  detriment  of  competing  MVPDs  and,  ultimately,  the  public.  521  MVPD  commenters  contend  the  transaction  fundamentally  shifts  the  balance  of  power  between 
 MVPDs  and  Fox  broadcast  stations  in  retransmission  negotiations  because  Fox  will  have  the  option  to  walk  away  from  retransmission  consent  negotiations  and  broadcast  only  on  DirecTV.  522  EchoStar  and 
 others  claim  that  the  transaction  will  enable  News  Corp.  to  demand  higher  retransmission  consent  fees,  withhold  access  to  its  local  television  broadcast  signals,  or  demand  concessions  such  as  carriage  of 
 affiliated  cable  networks  without  fear  of  failing  to  secure  distribution  for  any  of  its  programming.  523  Commenters  allege  that  this  conduct  will  harm  competition  and  consumers  by  forcing  DirecTVs 
 competitors  to  raise  consumer  rates  to  pay  higher  retransmission  consent  fees  and/  or  by  forcing  competitors  to  carry  less  desirable  Fox  programming.  524 


 185.  Several  MVPD  commenters  contend  that  local  television  broadcast  stations  are  must  have  programming,  which  is  critical  to  securing  and  maintaining  subscribers.  525  Commenters  also 
 express  concern  that  information  sharing  between  Fox  programming  divisions  and  DirecTV  will  increase  News  Corp.  s  bargaining  power  in  retransmission  consent  negotiations  and  thus  will  adversely  affect 
 competing  MVPDs.  526  The  JCC  and  EchoStar  also  contend  that  News  Corp.  negotiates  or  influences  the  terms  of  retransmission  consent  agreements  for  not  only  its  O&  Os,  but  also  for  other  stations  affiliated 


 519  Application  at  64-  65;  Applicants  Reply  at  44-  47. 
 520  Applicants  Reply  at  41. 
 521  NAB  Comments  at  i-  ii;  EchoStar  Petition  at  1-  2;  Cablevision  Comments  at  11-  18;  NRTC  Petition  at  11-  17; 
 JCC  Comments  at  15-  33;  CFA  Reply  Comments  at  4,  11-  12. 
 522  EchoStar  Petition  at  14;  Cablevision  Comments  at  12;  JCC  Comments  at  46. 


 523  See,  e.  g.,  EchoStar  Petition  at  12-  13;  ACA  Comments  8-  16;  Cablevision  Comments  at  12-  16;  JCC  Comments 
 at  15-  33. 
 524  JCC  Comments  at  54-  55;  Cablevision  Comments  at  15. 


 525  EchoStar  Petition  at  22;  Cablevision  Comments  at  13;  JCC  Comments,  Rogerson  Analysis  at  9-  12.  Rogerson 
 states  that  the  closest  substitute  for  a  local  television  broadcast  station  would  be  an  out-  of-  market  station  affiliated  with  the  same  network,  but  notes  that  such  substitution  is  not  possible  because  of  the  network  non-  duplication  and 


 syndicated  exclusivity  rules.  Id. 
 526  EchoStar  Petition  at  13-  18;  ACA  Comments  at  9.  As  an  example,  EchoStar  notes  that  because  it  must  obtain 
 retransmission  consent  from  Fox  before  entering  a  new  local  market,  DirecTV  will  know  what  markets  EchoStar  plans  to  enter  in  advance,  and  can  act  strategically  to  minimize  the  benefits  to  EchoStar  of  entering  a  new  market. 


 EchoStar  Petition  at  17-  18. 
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 with  the  Fox  network.  527 
 186.  JCC  note  that  News  Corp.  pioneered  the  use  of  retransmission  consent  to  spawn  new  cable  programming  networks,  and  that  the  strategy  has  allowed  News  Corp.  to  expand  its  cable  networks 


 faster  than  any  other  cable  programmer.  528  Commenters  assert  that  small  and  medium-  sized  cable  operators  are  the  most  vulnerable  to  News  Corp.  s  enhanced  bargaining  power.  529  ACA  contends  that, 
 although  Applicants  assert  that  they  only  have  incentives  to  consent  to  carriage  on  mutually  agreeable  terms,  News  Corp.  s  historical  conduct  towards  some  small  and  mid-  sized  cable  operators  results  in 
 agreements  that  are  anything  but  mutual  or  agreeable.  530  Instead,  ACA  claims  that  negotiations  for  carriage  of  Fox  O&  Os  are  characterized  by  take  it  or  leave  it  proposals  and  threats  to  deny  carriage  that 
 will  particularly  disadvantage  DirecTVs  smaller  competitors  in  less  dense  areas  of  the  country  once  News  Corp.  acquires  control  of  DirecTV.  531  ACA  reiterates  that  its  concerns  arise  from  the  unique 
 combination  of  assets  that  the  transaction  brings  together,  and  argues  that  the  ability  of  a  combined  News  Corp./  DirecTV  to  disadvantage  smaller  competitors  through  retransmission  consent  is  unprecedented 
 and  must  be  addressed  within  the  context  of  this  proceeding.  532 
 187.  Cablevision  disputes  Applicants  claim  that  they  lack  the  incentive  and  ability  to  withhold  access  to  their  broadcast  programming,  and  contends  that  similar  arguments  already  have  been 


 considered  and  rejected  by  the  Commission.  533  Specifically,  Cablevision  notes  that  the  Commission  has  previously  held  that  a  vertically  integrated  programmer  has  the  incentive  and  ability  to  favor  its 
 affiliated  MVPD  when  that  MVPD  has  the  power  to  reach  all  potential  subscribers,  who  can  switch  to  that  provider  to  receive  the  programming  if  they  view  it  as  valuable.  534  Cablevision  also  notes  that  although 
 cable  operators  argued,  as  Applicants  do  here,  that  it  would  not  make  economic  sense  to  limit  distribution  of  affiliated  programming,  the  Commission  found  that  argument  unpersuasive.  535  Cablevision  also  points 
 to  the  Commissions  conclusion  that  where  must-  have  programming  is  involved,  denying  program  access  to  a  competitor  is  an  investment  that  brings  benefit  because  subscribers  will  switch  providers  in 
 order  to  receive  it.  536  Cablevision  contends  that  these  conclusions  apply  with  equal  force  to  post-transaction  News  Corp.,  which  will  have  the  same  incentives  and  abilities  to  withhold  access  to  its 


 527  JCC  Comments  at  21,  n.  39,  65;  EchoStar  Petition  at  15-  16,  18. 
 528  JCC  Comments  at  21,  25-  26. 
 529  ACA  Comments  at  8-  15;  ACA  Reply  Comments  at  4;  JCC  Comments  at  30.  ACA  claims  that  smaller  cable 
 operators  will  be  especially  vulnerable  to  Fox  network  abuses  because  the  incentive  to  disadvantage  smaller  competitors  in  favor  of  DirecTV  will  likely  outweigh  any  temporary  marginal  advertising  revenue  decrease.  ACA 


 Comments  at  13. 
 530  ACA  Comments  at  13-  15. 


 531  ACA  Comments  at  13-  15;  ACA  Oct.  17  Ex  Parte. 
 532  ACA  Oct.  17  Ex  Parte  at  4-  5. 
 533  Cablevision  Comments  at  28  (citing  Program  Access  Order,  17  FCC  Rcd  at  12125    3);  see  also  JCC  Aug.  4 
 Ex  Parte  at  6-  7. 
 534  Cablevision  Comments  at  28  (citing  Program  Access  Order,  17  FCC  Rcd  at  12125    3). 


 535  Cablevision  Comments  at  28. 
 536  Cablevision  Comments  at  28. 
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 broadcast  programming  as  would  a  vertically  integrated  MSO.  537 
 188.  Most  MVPD  commenters  maintain  that  the  Commission's  rule  that  broadcasters  negotiate  in  good  faith  is  an  inadequate  safeguard,  standing  alone,  in  the  context  of  the  proposed  transaction.  538 


 Commenters  note  that,  at  the  time  the  good  faith  provisions  were  adopted,  cross-  ownership  of  a  cable  system  and  a  television  broadcast  station  in  the  same  market  was  prohibited,  so  the  Commission  was 
 unlikely  to  have  considered  the  impact  of  common  ownership  of  broadcast  stations  and  an  MVPD  on  retransmission  consent  negotiations.  539  JCC  assert  that  the  retransmission  consent  scheme  is  not  reflective 
 of  todays  media  marketplace  or  other  media  regulations,  and  note  that,  today,  most  popular  stations  today  choose  retransmission  consent  over  must-  carry.  540  Specifically,  JCC  assert  that  retransmission 
 consent  was  designed  for  an  era  when  local  broadcast  station  ownership  was  less  concentrated,  when  duopolies  were  prohibited,  and  broadcast  licensees  were  prohibited  from  owning  a  cable  system  in  their 
 local  markets,  citing  several  regulatory  and  marketplace  changes  since  1992.  541  Cablevision  contends  that  the  power  imbalance  between  broadcasters  and  MVPDs  with  respect  to  retransmission  consent 
 negotiations  has  been  exacerbated  by  increased  concentration  in  media  ownership  and  resulting  increases  in  the  number  of  stations  affiliated  with  and  controlled  by  the  top  four  broadcast  networks.  542 


 189.  EchoStar  asserts  that  the  Commissions  interpretation  of  the  good  faith  negotiation  requirement  makes  violations  difficult  to  prove,  and  observes  that  the  Commission  has  never  granted  a 
 DBS  operator  relief  under  these  rules.  543  JCC  argue  that  News  Corp.  can  abuse  its  market  power  without  its  actions  qualifying  as  outrageous  under  the  Commissions  rules.  544  ACA  contends  that  good  faith 
 negotiation  complaints  are  not  a  viable  remedy  because:  (1)  they  require  extensive  resources;  and  (2)  until  the  complaint  is  adjudicated,  the  network  signal  must  be  dropped.  545  Commenters  further  note  that  the 


 537  Cablevision  Comments  at  28-  29.  Cablevision  contends  that  News  Corp.  s  ability  to  withhold  broadcast 
 programming  is  even  greater  than  that  of  a  vertically  integrated  MSO,  because  local  broadcast  signals  win  a  substantially  greater  share  of  the  viewing  audience  and  represent  must  have  programming  far  more  than  any 


 cable  programmer  could.  Id.  at  29. 
 538  EchoStar  Petition  at  15-  16,  19-  21;  ACA  Comments  at  11-  12;  JCC  Comments  at  31-  34;  Cablevision  Comments  at 
 11,  26. 
 539  EchoStar  Petition  at  14.  This  prohibition  was  subsequently  vacated  by  the  U.  S.  Court  of  Appeals  for  the  D.  C. 
 Circuit.  See  Fox  Television  Stations  v.  FCC,  280  F.  3d  1027  (D.  C.  Cir.  2002);  rehg  granted  in  part,  293  F.  3d  537  (D.  C.  Cir.  2002). 


 540  JCC  Comments  at  17-  18.  CFA  agrees  and  has  urged  Congress  to  revisit  the  necessity  of  retransmission  consent 
 at  is  pertains  to  stations  owned  and  operated  by  News  Corp./  Fox  in  testimony  before  the  Senate  Commerce  Committee.  CFA  Reply  at  12. 


 541  JCC  Comments  at  17-  18. 
 542  Cablevision  at  11;  see  also  JCC  Comments  at  28  n.  61(  discussing  News  Corp.  s  ability  to  use  its  television 
 duopolies  and  RSNs  to  cross-  promote  the  outlets,  bundle  sales  of  advertising  time,  and  gain  leverage  in  retransmission  consent  negotiations). 


 543  EchoStar  Petition  at  19.  EchoStar  contends  that  the  good  faith  requirement,  as  interpreted  by  the  Commission, 
 applies  to  the  process  of  negotiations,  not  the  substantive  terms.  Id. 
 544  JCC  Comments  at  31  (citing  47  C.  F.  R.    76.65(  c),  76.7). 


 545  ACA  Comments  at  11-  12. 
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 Commission's  rules  regulating  broadcasters'  retransmission  negotiations  are  scheduled  to  sunset  at  the  end  of  2005.  546 
 190.  Cablevision  also  expresses  particular  concern  about  the  effect  of  the  transaction  on  its  DBS  affiliate,  Rainbow  DBS.  547  Cablevision  claims  that  Rainbow  DBS  has  the  potential  to  become  a 
 formidable  DBS  competitor,  so  DirecTV  has  a  strong  incentive  to  hobble  Rainbow  DBS  development.  548  Cablevision  contends  that  vertical  integration  with  a  supplier  of  programming  and  television  broadcast 
 signals  will  give  DirecTV  the  ability  to  disadvantage  its  DBS  competition.  549  Cablevision  asserts  that  the  Applicants'  argument  that  News  Corp.  cannot  risk  losing  viewers  is  wholly  inapplicable  to  Rainbow  DBS 
 because,  due  to  Rainbow's  small  subscriber  base,  News  Corp.  would  suffer  almost  no  harm  from  hindering  Rainbow  DBS  entry  into  the  market.  550 


 191.  Applicants  respond  with  the  CRA  Analysis,  which  finds  that  permanent  withholding  of  broadcast  signals  would  not  be  in  News  Corp.  s  economic  interest.  Comparing  the  costs  (i.  e.,  lost 
 advertising  and  other  revenues)  and  benefits  (i.  e.,  profits  from  increased  subscribership  to  DirecTV)  of  withholding  the  signals  of  News  Corp.  s  television  broadcast  stations  from  competing  MVPDs,  551  the 
 CRA  Analysis  finds  that  DirecTV  would  have  to  quadruple  its  subscribership  in  News  Corp.  s  O&  O  markets  in  order  for  signal  withholding  to  be  a  profitable  strategy  for  post-  transaction  News  Corp.  552 
 Applicants  contend  that  such  subscribership  increases  are  implausible.  553 
 192.  Applicants  reject  as  economically  irrational  claims  that  they  will  be  able  to  raise  prices  for  retransmission  consent  uniformly  following  the  transaction.  554  According  to  Applicants,  commenters 


 have  failed  to  recognize  that  such  a  strategy  would:  (1)  lower  expected  profits  for  the  O&  Os,  which  are  already  profit-  maximizing  in  their  bargaining  for  retransmission  consent;  (2)  lower  expected  profits  for 
 DirecTV  by  increasing  its  costs  for  O&  O  programming;  and  (3)  eliminate  certain  efficiencies  that  Applicants  expect  to  result  from  the  transaction,  including  elimination  of  double  marginalization.  555 


 193.  Applicants  further  assert  that  permanent  and  temporary  foreclosures  are  not  transaction- 


 546  ACA  Comments  at  11-  12;  JCC  Comments  at  34;  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  39. 
 547  Cablevision  Comments  at  19-  20. 
 548  Cablevision  Comments  at  19. 
 549  Cablevision  Comments  at  19-  20. 
 550  Cablevision  Comments  at  20. 
 551  Applicants  Reply,  Exhibit  B,  CRA  Analysis  at  43-  46.  CRA  also  considers  whether  the  transaction  would 
 enhance  News  Corp.  s  incentive  and  ability  to  withhold  its  broadcast  station  signals  only  from  small  cable  operators  and  finds  that  signal  withholding  would  still  be  unprofitable.  Id.  at  47-  49. 


 552  Applicants  Reply  at  41  (citing  CRA  Analysis  at  44,  52). 
 553  Applicants  Reply  at  42. 
 554  Applicants  Reply  at  44. 
 555  Applicants  Reply  at  44. 
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 specific  harms  because  they  could  effectively  be  achieved  through  the  use  of  contracts.  556  As  evidence  of  this,  News  Corp.  points  to  a  retransmission  dispute  in  which  broadcast  television  stations  owned  by 
 Disney  were  briefly  dropped  from  Time  Warner  cable  systems  in  May  2000  in  a  dispute  over  retransmission  consent.  In  the  time  leading  up  to  the  removal  of  the  signal,  Disney  agreed  with  DirecTV 
 to  subsidize  customers  that  switched  from  Time  Warner  to  DirecTV.  557 
 194.  JCC  and  Cablevision  respond  that  Applicants  Reply  and  the  CRA  Analysis  fail  to  address  the  likelihood  of  the  potential  harm  of  temporary  foreclosure  which  they  had  raised.  558  JCC  assert 


 that,  while  the  Applicants  have  attempted  to  prove  that  permanent  withholding  of  Fox  programming  would  be  unprofitable,  it  is  temporary  and  not  permanent  foreclosure  that  is  the  real  threat  posed  by  the 
 transaction.  559  They  further  contend  that  control  of  DirecTV  effectively  reduces  the  costs  and  risks  to  News  Corp.  of  employing  take  it  or  leave  it  bargaining  tactics  with  competing  MVPDs  seeking  to  carry 
 must  have  FOX  broadcast  network  programming,  thus  increasing  the  likelihood  that  News  Corp.  will  engage  in  such  behavior.  560  JCC  contend  that  the  increase  in  bargaining  power  resulting  from  the 
 transaction  will  lead  to  higher  prices  for  consumers,  particularly  in  less  dense  regions  of  the  country  served  by  small  to  medium-  sized  cable  systems.  561  JCC  and  Cablevision  further  contend  that  News  Corp. 
 need  only  withhold    or  threaten  to  withhold    programming  from  a  handful  of  MVPDs  in  a  few  select  markets  for  only  a  short  period  of  time  in  order  to  obtain  undue  pricing  power  and  negotiating  leverage.  562 


 195.  Commenters  assert  that  documents  filed  in  the  record  by  Applicants  demonstrate  that:  (1)  News  Corp.  already  engages  in  temporary  foreclosure  of  local  broadcast  station  programming  to  obtain 
 more  favorable  rates  and  terms;  (2)  acquiring  control  over  DirecTV  will  reduce  the  costs  of  such  tactics;  and  (3)  News  Corp.  recognizes  that  service  interruptions  can  send  a  valuable  message  to  other  MVPDs 
 about  the  consequences  of  resisting  its  demands.  563 


 556  Applicants  Reply  at  24. 
 557  Applicants  Sep.  8  Ex  Parte  at  3;  Lexecon  Analysis  II    66. 
 558  JCC  Aug.  4  Ex  Parte;  Cablevision  Aug.  20  Ex  Parte. 
 559  JCC  Aug.  4  Ex  Parte  at  2;  see  also  Cablevision  Aug.  20  Ex  Parte  at  1,  Rubinfeld  Analysis  at  2. 
 560  JCC  Aug.  4  Ex  Parte  at  2;  Cablevision  Ex  Parte  at  1. 
 561  JCC  Aug.  4  Ex  Parte  at  2,  Rogerson  Analysis  II  at  2. 
 562  Rogerson  states  that  In  large  part,  the  studies  of  News  Corp.  s  economists  are  focused  upon  demonstrating  that 
 it  is  not  economically  rational  for  News  Corp.  to  withhold  programming  permanently  from  rival  MVPDs  to  increase  DirecTVs  attractiveness  and  market  share.  Lexecon  and  CRA  ignore  and  do  not  account  for  the  more  likely 


 scenario  that  News  Corp.,  armed  with  increased  bargaining  power,  has  increased  ability  to  raise  prices  to  all  distributors,  and  therefore  to  consumers,  through  the  actual  or  threatened  withholding  of  programming.  JCC  Aug. 
 4  Ex  Parte,  Rogerson  Analysis  II  at  2.  See  also  Rubinfeld  at  1,  10. 
 563  JCC  Nov.  5  Ex  Parte  at  2-  3;  Cablevision  Aug.  20  Ex  Parte  at  2.  In  support  of  this,  JCC  cite  documents 
 [REDACTED].  JCC  also  cites  News  Corp.  documents  [REDACTED].  Similarly,  Cablevision  asserts  [REDACTED].  Cablevision  Aug.  20  Ex  Parte  at  2  [REDACTED].  Applicants  disagree  with  JCCs  interpretation 


 of  their  documents.  See  Letter  from  William  M.  Wiltshire,  Harris,  Wiltshire  &  Grannis,  LLP,  Gary  M.  Epstein,  Latham  &  Watkins,  and  Richard  E.  Wiley,  Wiley  Rein  &  Fielding,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Nov.  13, 
 2003)  (  Applicants  Nov.  13  Ex  Parte). 
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 196.  JCC  and  Cablevision  also  use  the  data  and  methodology  from  the  CRA's  permanent  foreclosure  analysis  to  support  their  temporary  foreclosure  theory.  564  For  example,  Rogerson,  on  behalf 
 of  the  JCC,  finds  that,  if  News  Corp.  temporarily  withholds  a  broadcast  station  from  a  targeted  MVPD,  it  breaks  even  economically  if  less  than  1%  of  that  MVPDs  subscribers  migrate  to  DirecTV.  565  In  a  similar 
 vein,  Cablevisions  Rubinfeld  concludes  that  temporary  withholding  of  broadcast  programming  will  be  profitable  if  DirecTVs  market  share  increases  by  just  less  than  1.5%.  566  JCC  further  argues  that,  since 
 the  ultimate  purpose  of  temporary  withholding  of  programming  is  to  increase  prices  across  a  national  base  of  over  ninety  million  MVPD  households,  it  is  clear  that  News  Corp.  has  every  incentive  to  engage  in 
 such  conduct.  567  JCC  asserts  that  in  the  context  of  temporary  foreclosure,  DirecTVs  national  footprint  is  especially  important,  because  it  insulates  Applicants  against  any  potential  losses  from  such  foreclosure  in 
 every  market  in  the  country.  568  Responding  to  Applicants  argument  that  News  Corp.  s  already  maximizes  profits  on  its  programming,  JCC  contends  that  recent  comments  made  by  News  Corp.  executives  belie 
 this  analysis,  and  that  it  is  inconsistent  with  Applicants  own  economic  reasoning,  including  its  theory  of  raising  rivals'  costs.  569 


 197.  Commenters  further  assert  that  there  is  no  basis  for  concluding  that  Applicants  claimed  incentives  to  eliminate  double  marginalization  will  offset  the  competitive  harms  arising  from  the 
 transaction.  570  First,  they  assert  that  DirecTV  is  under  no  obligation  to  pass  cost  savings  arising  from  the  elimination  of  double  markup  on  to  consumers.  571  Second,  they  contend  that  there  is  no  basis  to  conclude 
 that  Applicants  incentives  to  eliminate  double  markup  if  any  outweigh  the  incentives  to  raise  rivals  costs.  572 


 198.  Cablevision  and  its  expert  Rubinfeld  identify  several  additional  alleged  flaws  in  the  CRA  Analysis.  First,  they  claim  that  the  CRA  Analysis,  in  calculating  lost  advertising  revenue,  fails  to 
 consider  that  some  customers  view  Fox  signals  over-  the-  air.  Second,  they  assert  that  even  a  temporary  withholding  affects  the  future  growth  of  an  MVPD,  because  subscribers  selecting  a  new  MVPD  will 
 consider  access  to  programming  in  making  that  decision.  Third,  they  contend  that  the  Applicants  fail  to  acknowledge  that  News  Corp.  and  DirecTV  could  easily  engage  in  joint  profit  maximization,  without 
 News  Corp.  's  having  a  100%  ownership  interest  in  DirecTV.  Finally,  they  claim  that  withholding  programming  from  cable  competitors  may  confer  significant  marketing  advantages  on  DirecTV.  573 


 564  JCC  Aug.  4  Ex  Parte  at  3  and  Rogerson  Analysis  II;  Cablevision  Aug.  20  Ex  Parte  at  1  and  Rubinfeld  Analysis. 
 565  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  2-  3. 
 566  Cablevision  Aug.  20  Ex  Parte  at  2  and  Rubinfeld  Analysis  at  10. 
 567  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  3. 
 568  JCC  assert  that,  for  this  reason,  the  Commission  should  not  focus  on  DirecTVs  share  of  the  MVPD  market,  as 
 the  Applicants  have  done  in  their  Reply.  JCC  Aug.  4  Ex  Parte  at  4-  6. 
 569  JCC  Aug.  4  Ex  Parte  at  8  and  Rogerson  Analysis  II  at  40-  42. 


 570  JCC  Aug.  4  Ex  Parte  at  9-  10. 
 571  JCC  Aug.  4  Ex  Parte  at  9. 
 572  Id.  at  9-  10  and  Rogerson  Analysis  II  at  29-  33;  Cablevision  Aug.  20  Ex  Parte,  Rubinfeld  Analysis  at  21-  22. 
 573  Cablevision  Aug.  20  Ex  Parte  at  2  and  Rubinfeld  Analysis  at  5-  9,  11-  14,  19-  20. 
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 199.  Responding  to  Applicants'  argument  that  temporary  foreclosure  of  broadcast  programming  cannot  be  considered  a  transaction-  specific  harm  because  the  parties  could  also  accomplish 
 it  through  contracts,  opponents  of  the  transaction  contend  that  it  would  be  difficult  for  News  Corp.  and  DirecTV  to  negotiate  and  monitor  compliance  with  the  contracts  that  would  divide  the  benefits  of 
 temporary  foreclosure.  574  They  further  argue  that,  if  the  efficiencies  of  the  transaction  cannot  be  gained  through  arms-  length  contracting,  it  is  unlikely  that  the  benefits  of  foreclosure  can  be  achieved  through 
 arms-  length  contracting.  575 
 200.  Applicants  submit  a  further  economic  analysis,  responding  to  the  analyses  of  Rogerson  and  Rubinfeld,  which  finds  that  an  interest  in  DirecTV  will  not  make  a  temporary  foreclosure  strategy 


 profitable  for  News  Corp.  Applicants  contend  that  the  Rogerson  and  Rubinfeld  analyses:  (1)  overestimate  the  numbers  of  consumers  that  would  switch  to  DirecTV  due  to  temporary  withholding;  (2)  overestimate 
 gains  to  DirecTV  based  on  unrealistic  assumptions  about  the  length  of  time  that  new  subscribers  would  remain  with  DirecTV;  and  (3)  underestimate  or  disregard  potential  countermeasures  available  to  MVPDs 
 and  the  potential  degradation  in  the  value  of  programming  withheld.  Applicants  assert  that  by  accounting  for  these  factors,  their  analysis  correctly  finds  that  temporary  foreclosure  would  not  be  profitable.  576 


 (iii)  Discussion 
 201.  We  find  that  News  Corp.  currently  possesses  significant  market  power  in  the  DMAs  in  which  it  has  the  ability  to  negotiate  retransmission  consent  agreements  on  behalf  of  local  broadcast 


 television  stations.  577  Local  broadcast  station  programming  is  highly  valued  by  consumers,  and  entry  into  the  broadcast  station  market  is  difficult.  Moreover,  we  conclude  that,  absent  conditions,  News  Corp.  s 
 acquisition  of  DirecTV  will  enhance  this  market  power,  which  could  result  in  several  public  interest  harms.  To  prevent  such  harms,  we  will  impose  conditions  that  are  discussed  below. 


 202.  At  the  outset,  we  agree  with  commenters  who  contend  that  carriage  of  local  television  broadcast  station  signals  is  critical  to  MVPD  offerings.  Congress  has  repeatedly  recognized  the 
 importance  of  carriage  of  local  television  broadcast  signals  to  MVPDs  most  recently  when  it  enacted  the  SHVIA,  which  permitted  DBS  operators  to  carry  local  television  broadcast  signals  so  that  they  could 
 better  compete  with  cable  operators.  578  As  we  recently  found  in  our  annual  video  competition  report,  DBS  penetration  has  increased  more  rapidly  in  markets  where  local-  into-  local  service  is  available.  579  We 


 574  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  22-  23;  Cablevision  Aug.  20  Ex  Parte  at  24. 
 575  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  23;  Cablevision  Aug.  20  Ex  Parte  at  24. 
 576  Applicants  Sept.  8  Ex  Parte  at  2. 
 577  Our  conclusions  apply  to  any  O&  O  station  as  well  as  any  local  broadcast  station  affiliate  on  whose  behalf 
 News  Corp.  negotiates  retransmission  consent  agreements. 
 578  See  H.  R.  Rep.  No.  106-  79  at  11-  15  (1999);  Satellite  Home  Viewer  Improvement  Act,  Pub.  L.  No.  106-  113,  113 
 Stat.  1501,  at  App.  I  at  1501A-  523  &  544. 
 579  DBS  operators  report  that  the  ability  to  carry  local  television  broadcast  signals  has  made  their  service  more 
 attractive  to  consumers.  See  2002  Video  Competition  Report,  17  FCC  Rcd  26901,  26931-  32    61  (2002);  see  also  U.  S.  Government  Accounting  Office  (GAO)  Report  to  the  Subcommittee  on  Antitrust,  Competition,  and  Business 


 and  Consumer  Rights,  Committee  on  the  Judiciary,  U.  S.  Senate,  Telecommunications  Issues  in  Providing  Cable  and  Satellite  Television  Services,  GAO-  03-  130,  October  2002  at  i,  9-  12. 
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 also  agree  with  commenters  who  contend  that  News  Corp.  possesses  market  power  in  the  broadcast  station  segment  of  the  video  programming  market.  We  base  this  finding,  in  part,  on  the  fact  that  the 
 signals  of  local  television  broadcast  stations  are  without  close  substitutes.  Moreover,  because  of  the  extremely  limited  availability  of  new  television  broadcast  licenses,  entry  into  this  segment  of  the  video 
 programming  market  is  highly  restricted. 
 203.  We  further  find  that  News  Corp.  s  existing  control  of  MVPDs  access  to  a  large  number  of  local  broadcast  stations  airing  highly  popular  Fox  network  programming,  when  combined  with 


 ownership  of  a  nationwide  DBS  platform,  will  likely  increase  News  Corp.  s  incentive  and  ability  engage  in  temporary  foreclosure  strategies  aimed  at  increasing  its  programming  fees  thereby  having  the  effect  of 
 raising  rival  MVPDs  costs  by  lowering  the  costs  to  News  Corp.  of  engaging  in  such  behavior.  Both  Applicants  and  commenters  have  provided  economic  analyses  that  rely,  in  part,  on  empirical  data  to 
 evaluate  whether  News  Corp.,  after  the  transaction,  will  engage  in  some  form  of  foreclosure.  580  Applicants  analyses  find  that  they  would  not  profit  from  either  permanent  or  temporary  foreclosure.  581 
 Commenters  analyses,  in  contrast,  find  that  Applicants  will  have  an  increased  incentive  and  ability  to  temporarily  withhold  access  to  their  broadcast  signals.  582 


 204.  In  addition  to  the  studies  submitted  by  the  parties,  Commission  staff  conducted  its  own  analysis,  which  is  described  in  greater  detail  in  Appendix  D.  As  commenters  have  correctly  observed,  the 
 ability  of  a  television  broadcast  station  to  threaten  to  withhold  its  signal,  even  if  it  does  not  actually  do  so,  changes  its  bargaining  position  with  respect  to  MVPDs,  and  could  allow  it  to  extract  higher  prices,  which 
 ultimately  are  passed  on  to  consumers.  583  Staffs  analysis  is,  as  was  true  for  RSN  carriage,  premised  on  the  assumption  that,  if  the  transaction  increases  News  Corp.  s  incentive  and  ability  to  withhold  the  signals 
 of  its  O&  Os  by  lowering  the  costs  to  News  Corp.  of  employing  such  bargaining  tactics,  News  Corp.  will  engage  in  such  behavior  and  that  this  will  result  in  an  increase  of  rival  MVPDs  costs,  and  ultimately  end-user 
 prices.  Key  to  determining  the  degree  to  which  the  transaction  lowers  News  Corp.  s  costs  of  engaging  in  temporary  foreclosure  is  the  number  of  subscribers  that  can  be  predicted  to  shift  from  the 
 affected  MVPD  to  competitor  DirecTV  to  access  the  foreclosed  programming,  which  in  turn  will  increase  the  profits  of  the  post-  transaction  company  as  a  whole.  Staff  analyzed  the  likelihood  of  two  types  of 
 potential  post-  transaction  foreclosure  of  access  to  News  Corp.  s  broadcast  signals:  (1)  permanent  foreclosure,  where  the  signal  is  permanently  removed  from  rival  MVPDs;  and  (2)  temporary  foreclosure, 
 where  the  signal  is  removed  for  a  brief  period.  Staff  performed  this  analysis  for  all  markets  in  which  Fox  owns  the  broadcasts  station  or  has  an  affiliation  agreement  with  the  station.  584 


 580  See  Applicants  Reply,  CRA  Analysis;  JCC  Comments,  Rogerson  Analysis;  JCC  Aug.  4,  2003  Ex  Parte, 
 Rogerson  Analysis  II;  JCC  Aug.  4,  2003  Ex  Parte,  Economic  Analysis  of  the  Competitive  Effects  of  the  Takeover  of  DirecTV  by  News  Corp.,  William  P.  Rogerson  (  Rogerson  Analysis  III);  Cablevision  Aug.  20  Ex  Parte, 


 Rubinfeld  Analysis;  Cablevision  Sept.  25  Ex  Parte,  Rubinfeld  Analysis  II. 
 581  Applicants  Reply,  CRA  Analysis. 


 582  JCC  Reply,  Rogerson  Analysis;  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II;  Cablevision  Aug.  20  Ex  Parte, 
 Rubinfeld  Analysis. 
 583  JCC  Aug.  4,  2003  Ex  Parte. 


 584  The  details  of  the  staffs  analysis  of  foreclosure  strategies  with  respect  to  local  broadcast  signals  are  described 
 in  the  technical  appendix,  Appendix  D  at  1-  13.  As  explained  in  greater  detail  in  the  next  section,  we  conclude  that  News  Corp.  has  the  ability  to  influence  the  terms  of  their  affiliates  retransmission  consent  agreements.  To  the 


 (continued.) 
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 205.  Permanent  Foreclosure:  As  discussed  in  greater  detail  in  Appendix  D,  staffs  analysis  examined  the  potential  profitability  of  both  permanent  and  temporary  foreclosure  strategies  each  of  News 
 Corp.  s  O&  O  broadcast  stations.  Based  upon  staffs  analysis,  we  find  that,  for  News  Corp.  to  profit  from  a  permanent  foreclosure  strategy,  DirecTV  would  have  to  capture  between  [REDACTED]  and 
 [REDACTED]  of  rival  MVPDs  subscribers,  depending  on  whether  News  Corp.  captures  50%  or  100%  of  the  additional  profits,  and  the  size  of  the  market.  585  We  agree  with  Applicants  that  it  is  unlikely  that 
 DirecTV  would  experience  subscriber  gains  of  these  magnitudes  as  a  result  of  a  broadcast  programming  foreclosure  strategy.  Consequently,  we  do  not  believe  that  use  of  a  permanent  foreclosure  strategy  in 
 retransmission  consent  negotiations  is  a  likely  harm  arising  from  this  transaction. 
 206.  Temporary  Foreclosure:  The  case  of  temporary  foreclosure  is  slightly  more  complicated  than  that  for  permanent  foreclosure.  In  particular,  the  analysis  of  temporary  foreclosure  required  staff  to 


 consider  additional  variables,  including  the  likelihood  that  some  customers  would  later  return  to  their  initial  MVPD  service,  586  the  timing  of  the  foreclosure,  and  the  timing  of  subscriber  gain  and  loss.  587  We 
 again  agree  with  commenters  who  argue  that  a  temporary  foreclosure  strategy  is  likely  to  be  profitable  for  News  Corp.  in  many  instances,  and  therefore  likely  to  be  pursued  more  frequently  post-  transaction  than  it 
 is  today.  The  staff  analysis  found  that,  for  News  Corp.  to  profit  from  a  temporary  foreclosure  strategy  in  which  a  Fox  broadcast  signal  is  withheld  for  one  month,  DirecTV  would  have  to  capture  between 
 [REDACTED]  and  [REDACTED]  of  rival  MVPDs  subscribers,  depending  on  the  size  of  the  market  and  whether  News  Corp.  could  capture  50%  or  100%  of  the  additional  profits.  588  We  find  that  the 
 subscriber  shifts  required  for  temporary  foreclosure  to  be  profitable  are  likely  to  be  realized. 
 207.  We  base  this  finding  on  the  effects  of  the  temporary  withdrawal  of  the  ABC  broadcast  station  from  Time  Warner  subscribers  in  the  Houston  DMA.  As  commenters  have  noted,  this  example 


 illustrates  the  likely  responses  of  consumers  to  the  anticipation  and  eventual  loss  of  a  popular  broadcast  station  from  their  chosen  MVPD.  589  The  Applicants  argue  that  this  incident  is  not  relevant  since  the 
 withdrawal  of  the  broadcast  station  was  instigated  by  the  MVPD  rather  than  the  broadcaster,  as  would  occur  under  the  harms  alleged  in  this  proceeding.  590  Our  use  of  this  incident  is  not  intended  to  analyze  the 
 motives  behind  the  withdrawal,  however.  Rather,  we  use  the  incident  to  measure  the  likely  responses  of  consumers  to  the  loss  of  broadcast  programming. 


 (Continued  from  previous  page)  extent  that  News  Corp.  is  involved  in  negotiating  the  terms  of  retransmission  consent  for  its  affiliates,  the  potential 
 harms  relating  to  foreclosure  of  broadcast  programming  extend  to  a  much  broader  geographic  area. 
 585  See  Appendix  D,  Technical  Appendix. 


 586  Our  analysis  assumes  that  no  customers  will  leave  DirecTV  for  the  first  12  months  following  their  switch, 
 [REDACTED]  will  leave  once  their  equipment  contracts  expire,  and  in  all  following  months,  [REDACTED]  of  the  remaining  customers  will  revert  to  their  original  MVPD.  See  Appendix  D,  Technical  Appendix. 


 587  We  adopt  a  discounted  cash  flow  approach  to  allow  us  to  compare  the  benefits  and  costs  of  that  occur  over 
 time.  The  discounted  cash  flow  analysis  is  the  technique  used  by  both  commenters  and  Applicants  and  is  the  standard  method  for  comparing  flows  of  costs  and  benefits  that  vary  temporally.  See  Applicants  Sept.  8  Ex  Parte; 


 Cablevision  Aug.  20  Ex  Parte,  Rubinfield  Analysis. 
 588  See  Appendix  D,  Technical  Appendix. 


 589  JCC  Sept.  23  Ex  Parte  at  18;  Cablevision  August  19  Ex  Parte  at  3-  5. 
 590  Applicants  Sept.  8  Ex  Parte  at  25-  27. 
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 208.  Both  Cablevision  and  the  Applicants  have  provided  data  on  the  subscriber  shift  that  occurred  during  the  ABC    Time  Warner  dispute.  Cablevision  reports  that  20,000  vouchers  were  issued 
 for  free  installation  of  DirecTV  to  Time  Warner  customers  in  Houston,  or  about  3%  of  Time  Warners  subscribers  in  Houston.  591  Cablevision  does  not  have  any  information  on  the  number  of  rebates  that  were 
 actually  redeemed  for  DirecTV  service.  592  However,  the  Applicants  provided  an  accounting  of  the  number  of  rebate  coupons  redeemed  in  the  Houston  area  of  approximately  [REDACTED].  593  The 
 number  of  rebate  coupons  available  was  limited,  however,  and  there  may  have  been  many  other  Time  Warner  customers  that  switched  to  DirecTV  without  receiving  a  rebate.  594  We  conclude,  therefore,  that 
 this  estimate  represents  merely  a  lower  bound  on  the  number  of  Time  Warner  customers  that  switched  to  DirecTV.  Cablevision,  using  data  on  the  number  of  DirecTV  subscribers  in  the  Houston  DMA  during  the 
 time  of  the  dispute,  estimates  that  DirecTV  [REDACTED]  customers  due  to  the  withdrawal  of  the  ABC  signal  from  the  Time  Warner  cable  systems  in  Houston.  595  The  staff's  econometric  analysis  of  DirecTVs 
 gains  in  subscribers  indicates  that  DirecTV  gained  [REDACTED]  customers,  or  [REDACTED]  of  Time  Warners  customers  in  Houston,  as  a  result  of  the  dispute.  596  We  find  this  response  to  be  representative  of 
 the  shifts  of  customers  that  could  occur  during  a  long-  simmering  dispute  over  retransmission  consent.  According  to  our  analysis,  a  shift  of  this  magnitude  would  put  [REDACTED]  at  risk  of  the  harms  alleged 
 to  result  from  this  transaction. 
 209.  Based  on  this  analysis,  we  conclude  that  the  transaction  will  increase  News  Corp.  s  post-transaction  incentive  and  ability  to  temporarily  withhold  access  to  the  signals  of  its  television  broadcast 


 stations  as  a  negotiating  tactic  by  lowering  the  risks  and  costs  to  News  Corp.  of  engaging  in  such  foreclosure.  We  agree  with  commenter  claims  that  this  enhanced  incentive  and  ability  to  engage  in 
 temporary  foreclosure  will  allow  News  Corp.  to  extract  more  compensation  for  its  broadcast  station  signals  from  competing  MVPDs  than  it  could  reasonably  expect  to  achieve  absent  the  transaction.  The 
 potential  public  interest  harms  that  would  result  from  such  a  strategy  are  substantial.  News  Corp.  s  ability  to  raise  rivals  costs  in  this  manner  would  harm  consumers  in  different  ways  depending  on  the  type 
 of  compensation  it  obtains.  When  News  Corp.  secures  carriage  of  other  cable  programming  networks  from  MVPDs  in  exchange  for  its  broadcast  signal,  MVPDs  pay  for  those  networks.  If  News  Corp.  can 
 secure  carriage  of  more  cable  networks  and  charge  higher  fees  for  such  carriage,  these  fees  are  unlikely  to  be  absorbed  solely  by  the  MVPDs,  but  would  be  passed  on  to  consumers  in  the  form  of  higher  rates.  If 
 News  Corp.  uses  withholding  or  threats  of  withholding  in  retransmission  consent  negotiations  to  obtain 
 591  Cablevision  Aug.  19  Ex  Parte  at  4. 
 592  Furthermore,  we  note  that  Time  Warner  offered  to  accept  the  rebate  coupons  and  issue  credits  for  digital  cable 
 and  Internet  service.  See  Mike  McDaniel,  TV  Spat  Turns  into  Game  of  Give  and  Let-  Give,  Cable  Firms  to  Honor  Ch.  13  Satellite  Vouchers,  HOUSTON  CHRONICLE,  Mar.  8,  2000. 


 593  Applicants  Response  to  Second  Information  and  Document  Request  at  3;  Applicants  Response  to  Third 
 Information  and  Document  Request  at  3-  4. 
 594  Mike  McDaniel,  TV  Spat  Turns  into  Game  of  Give  and  Let-  Give,  Cable  Firms  to  Honor  Ch.  13  Satellite 
 Vouchers,  HOUSTON  CHRONICLE,  Mar.  8,  2000. 
 595  Letter  from  Tara  Corvo  ,  Mintz,  Levin,  Cohn,  Ferris,  Glovsky  and  Popeo,  PC,  to  Marlene  H.  Dortch,  Secretary, 
 FCC  (Nov.  20,  2003)  (  Cablevision  Nov.  20  Ex  Parte),  Daniel  L.  Rubinfeld  and  Duncan  Cameron,  Estimating  the  Effect  on  MVPD  Subscribership  of  the  May  2000  Withholding  of  ABC  Network  Retransmissions  from  Time 


 Warner  Houston  Cable  Subscribers  at  11. 
 596  See  Appendix  D,  Technical  Appendix  at  para.  23. 
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 carriage  of  its  affiliated  cable  networks  that  the  MVPD,  absent  the  threat  of  foreclosure,  would  not  agree  to  carry,  consumers  are  harmed  because  MVPDs  are  forced  to  make  programming  decisions  based  on 
 News  Corp.  s  demands,  rather  than  selecting  the  programming  of  their  choice.  In  the  long  term,  News  Corp.  s  use  of  market  power  to  extract  artificially  high  levels  of  compensation  from  MVPD  rivals,  or 
 other  carriage  concessions,  could  make  rival  MVPDs  less  viable  options  for  consumers,  thus  limiting  consumer  choice. 


 210.  Moreover,  during  periods  of  temporary  foreclosure,  News  Corp.  s  television  broadcast  signal  is  not  available  to  the  subscribers  of  competing  MVPDs.  We  have  previously  found  that  local 
 broadcast  station  signals  play  a  very  important  role  in  terms  of  viewpoint  diversity  and  localism,  two  of  our  most  important  Communications  Act  goals  and  policies.  597  Loss  of  access  to  local  broadcast  stations 
 signals  harms  consumers  who  cannot  access  desired  Fox  programming,  local  news  and  public  affairs  programming,  and  other  programming  available  on  the  affected  stations,  even  if  the  loss  is  temporary. 


 211.  We  disagree  with  Applicants'  contention  that,  even  if  the  transaction  affected  their  incentive  to  engage  in  such  a  strategy,  our  rules  would  prevent  them  from  executing  such  a  strategy 
 successfully.  598  Although  the  Act  and  our  rules  are  important  safeguards  by  requiring  good  faith  negotiation  with  MVPDs  and  prohibiting  exclusive  retransmission  consent  agreements,  these  statutory 
 and  rule  provisions  do  not  prevent  broadcasters  from  withholding  their  signals  while  retransmission  consent  negotiations  are  in  progress,  nor  do  they  require  that  access  be  provided  on  non-  discriminatory 
 terms  and  conditions.  599  And,  the  rules  will  not  prevent  News  Corp.  from  uniformly  raising  broadcast  programming  carriage  costs  to  all  MVPDs,  including  DirecTV.  Because  we  find  that  the  proposed 
 transaction  poses  likely  consumer  harms  that  will  not  be  adequately  mitigated  by  the  Commissions  existing  rules,  and  the  Applicants  have  offered  no  additional  access  commitments,  we  consider  below 
 whether  other  conditions  can  mitigate  this  harm. 
 (iv)  Conditions 
 212.  Positions  of  the  Parties.  Consumers  Union  and  JCC  urge  the  Commission  to  expand  the  proposed  program  access  commitments  proposed  by  Applicants  to  include  the  television  broadcast 


 programming  of  Fox  O&  Os  and  any  other  Fox  affiliates  for  which  News  Corp.  conducts  retransmission  consent  negotiations.  600  Consumers  Union  explains  that  extension  of  News  Corp.  s  non-  discrimination 
 condition  to  local  broadcast  station  programming  can  be  useful  in  preventing  egregious  competitive  abuses  such  as  selling  Fox  programming  to  DirecTVs  competitors  at  prices  that  are  substantially  and 
 unjustifiably  higher  than  the  price  paid  by  DirecTV.  601  Non-  discrimination  requirements  alone,  however,  will  not  stop  News  Corp.  from  charging  DirecTV  an  artificially  high  price  for  Fox  programming  and  then 


 597  See,  e.  g.,  2002  Biennial  Regulatory  Review    Review  of  the  Commissions  Broadcast  Ownership  Rules  and 
 Other  Rules  Adopted  Pursuant  to  Section  202  of  the  Telecommunications  Act  of  1996,  18  FCC  Rcd  13620,  13623-  24    7-  8,  13627    17,  13643-  44,    73-  76  (  2002  Biennial  Review  Order),  recon.  pending;  Rules  and 


 Regulations  Relating  to  Multiple  Ownership,  18  F.  C.  C.  288  (1953). 
 598  Applicants  Reply  at  44-  46. 


 599  We  also  disagree  with  the  contention  that  the  alleged  harm  of  the  transaction  could  occur  through  contracting. 
 [REDACTED] 
 600  JCC  Comments  at  64-  65;  Consumers  Union  Sept.  23  Ex  Parte  at  5. 


 601  Consumers  Union  Sept.  23  Ex  Parte  at  5. 
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 requiring  any  MVPDs  seeking  to  carry  the  programming  to  either  pay  a  rate  based  upon  that  same  high  rate  or  allow  DirecTV  to  become  the  major  distributor  of  that  programming  in  the  MVPDs  market, 
 according  to  Consumers  Union.  Therefore,  Consumers  Union  recommends  that  the  Commission  impose  a  restriction  similar  to  what  the  FTC  applied  in  the  Time  Warner/  Turner  merger.  In  that  instance, 
 Consumers  Union  avers,  the  FTC  established  a  cable  programming  price  index  mechanism  to  evaluate  whether  the  merging  companies  were  raising  programming  prices  at  a  more  accelerated  pace  than  their 
 historic  pattern.  602 
 213.  ACA  suggests  another  variant  on  the  benchmarking  proposal  articulated  by  Consumers  Union.  Under  ACAs  proposal,  News  Corp.  also  could  not  impose  terms  or  conditions  on  other  cable 


 operators  that  are  more  costly  or  burdensome  than  the  terms  and  conditions  of  current  retransmission  consent  agreements.  603  Disputes  could  be  brought  to  the  Commission,  and  News  Corp.  would  be  required 
 to  grant  the  aggrieved  cable  operator  retransmission  consent  pending  resolution  of  the  dispute.  604  ACAs  plan  would  require  News  Corp.  to  negotiate  retransmission  consent  with  smaller  cable  operators  on  a 
 group  basis,  consistent  with  News  Corp.  s  current  practices  for  satellite  programming.  ACA  explains  that  its  proposals  would  maintain  News  Corp.  s  and  smaller  cable  operators  ability  to  negotiate  a  wide  variety 
 of  mutually  beneficial  carriage  arrangements  that  may  include  some  compensation  for  News  Corp.,  or  conversely,  for  the  cable  operator,  while  preventing  News  Corp.  from  raising  the  price  of 
 retransmission  consent  to  DirecTVs  competitors  as  a  consequence  of  gaining  control  of  DirecTV.  Permitting  smaller  cable  operators  to  pool  their  resources  and  address  retransmission  consent  on  a  group 
 basis,  as  they  have  done  for  years  on  the  satellite  programming  side,  will  also  temper  the  increase  in  negotiating  leverage  News  Corp.  gains  from  the  transaction.  605  ACA  also  proposes  that  News  Corp.  be 
 required  to  grant  retransmission  consent  to  small  cable  operators  (i.  e.,  those  serving  5,000  subscribers  or  less)  for  no  additional  consideration  beyond  continued  carriage  and  channel  placement.  606  ACA  states 
 that  this  condition  would  merely  adopt  what  the  Applicants  say  is  News  Corp.  s  current  practice    that  News  Corp.  has  granted  retransmission  consent  to  approximately  320  small  cable  companies  without 
 seeking  compensation  of  any  kind,  with  cash  or  carriage.  607  Finally,  ACA  requests  that  the  Applicants  be  required  to  offer  distribution  rights  to  qualifying  cable  operators  for  the  local-  into-  local  broadcast 
 signals  carried  by  DirecTV.  608  Cablevision  urges  the  Commission  to  impose  a  similar  requirement  allowing  Rainbow  DBS  to  redistribute  local  signals  carried  by  DirecTV.  609  But,  in  the  main,  Cablevision 


 602  Consumers  Union  Sept.  23  Ex  Parte  at  5-  6  (citing  Agreement  Containing  Consent  Order,  In  the  Matter  of  Time 
 Warner  Inc.,  Turner  Broadcasting  System  Inc.,  Tele-  Communications,  Inc.,  and  Liberty  Media  Corporation,  File  No.  961-  004,  Before  the  Federal  Trade  Commission  (Sept.  12,  1996)  at 


 http://  www.  ftc.  gov/  os/  1996/  09/  timewar.  pdf). 
 603  ACA  Oct.  17  Ex  Parte  at  Exhibit  A,  Page  1. 


 604  Id. 
 605  ACA  Oct.  17  Ex  Parte  at  6. 
 606  ACA  Oct.  17  Ex  Parte  at  Exhibit  A,  Page  1. 
 607  ACA  Oct.  17  Ex  Parte  at  6. 
 608  ACA  Oct.  17  Ex  Parte  at  Exhibit  A,  Page  2. 
 609  Cablevision  Comments  at  32.  Cablevision  also  urges  the  Commission  to  prohibit  Applicants  from  excluding 
 Rainbow  DBS  from  any  agreement  to  share  backhaul  it  makes  with  EchoStar  in  the  course  of  this  merger.  (continued.) 
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 is  doubtful  that  behavioral  remedies  alone  will  adequately  mitigate  the  increase  in  News  Corp.  s  market  power  arising  from  the  transaction,  and  maintains  that  a  structural  approach  is  better.  Cablevision 
 therefore  contends  that,  if  the  Application  is  granted,  News  Corp.  should  be  required  to  waive  the  retransmission  consent  rights  of  all  of  its  O&  Os  and  to  elect  must-  carry  on  all  Cablevision  systems.  610 


 214.  JCC  also  urges  us  to  prohibit  News  Corp.  from  entering  into  any  exclusive  retransmission  consent  contracts  or  other  exclusive  distribution  agreements  for  its  O&  Os  and  any  other  broadcast  stations 
 on  which  it  negotiates  agreements,  make  its  broadcast  stations  available  to  all  MVPDs  on  a  non-discriminatory  basis,  and  to  require  News  Corp.  to  enter  into  arbitration  proceedings  to  negotiate  carriage 
 of  its  broadcast  stations  in  certain  circumstances.  611  As  described  in  Section  VI.  C.  4.  b  supra,  JCC  propose  that  we  institute  a  commercial  arbitration  remedy  for  aggrieved  MVPDs  to  use  when  retransmission 
 consent  negotiations  reach  an  impasse.  612  The  arbitration  mechanism,  according  to  JCC,  is  designed  constrain  the  undue  pricing  power  and  bargaining  leverage  News  Corp.  gains  by  its  ability  to  profit  from 
 subscriber  shifts  to  DirecTV  during  periods  of  temporary  foreclosure,  and  thereby  mitigate  News  Corp.  s  ability  to  utilize  DirecTV  as  a  tactical  weapon  during  retransmission  consent  negotiations  with 
 unaffiliated  MVPDs.  613  JCC  also  recommends  that  we  prohibit  News  Corp.  from  removing  its  broadcast  station  signal  from  the  aggrieved  MVPDs  system  during  the  pendency  of  an  arbitration  proceeding. 
 RCN  supports  this  aspect  of  JCCs  proposal.  614  JCC  also  urge  us  to  mandate  that  News  Corp.  grant  MVPDs  nondiscriminatory  access  to  any  nationwide  high-  definition  (  HDTV)  feed  of  Fox  network 
 programming  that  News  Corp.  may  implement  in  the  future.  615  EchoStar  urges  us  to:  (i)  apply  the  good  faith  negotiation  rules  proposed  by  DirecTV  in  the  good  faith  negotiation  proceeding  to  News  Corp.;  616 
 and  (ii)  require  that  retransmission  consent  fees  for  Fox  O&  Os  do  not  exceed  the  lower  of:  the  highest  fees  agreed  to  with  any  other  network  station  in  the  same  market  or  the  fees  agreed  to  for  Fox  affiliates  in 
 other  markets.  617 
 215.  Discussion.  Several  conditions  proposed  by  commenters  are  intended  to  remedy  situations  that  are  unrelated  to  the  transaction.  As  we  stated  earlier,  we  decline  to  impose  non-  transaction 


 specific  conditions.  The  goal  of  our  transfer  application  review  process  is  to  allow  parties  to  realize  the  economic  efficiencies  associated  with  a  transaction  while  ensuring  that  any  harms  resulting  from  the 
 license  transfer  are  mitigated  and  some  portion  of  the  benefits  of  the  transfer  are  passed  on  to  the  public.  (Continued  from  previous  page) 
 Cablevision  has  not  demonstrated  that  any  such  agreement  has  been  reached,  or  that  negotiations  concerning  backhaul  are  in  progress. 


 610  Cablevision  Comments  at  27. 
 611  JCC  Aug.  18  Ex  Parte.,  Attachment  at  7-  8 
 612  JCC  Aug.  18  Ex  Parte,  Attachment  at  7-  8. 
 613  JCC  Aug.  18  Ex  Parte  at  2. 
 614  RCN  Oct.  24  Ex  Parte,  Attachment  at  7. 
 615  JCC  Comments  at  65-  66. 
 616  See  Implementation  of  the  Satellite  Home  Viewer  Improvement  Act  of  1999,  Retransmission  Consent  Issues: 
 Good  Faith  Negotiation  and  Exclusivity,  CS  Docket  No.  99-  363,  DirecTV  Comments  (filed  Jan.  12,  2000).  See  also  Good  Faith  Negotiation  Order. 


 617  EchoStar  Petition  at  67;  see  also  JCC  Reply  Comments  at  15-  16. 
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 For  example,  the  ACA  and  Cablevision  request  that  DirecTV  be  required  to  make  its  local-  into-  local  broadcast  station  signals  available  to  cable  operators  when  the  cable  operator  cannot  receive  a  good 
 quality  broadcast  signal  off-  air.  618  We  do  not  have  any  evidence  that  the  transaction  will  reduce  the  quality  of  broadcast  signals  available  to  cable  operators  and  we  therefore  decline  the  condition  as  being 
 unrelated  to  the  transaction. 
 216.  We  also  reject  the  proposed  conditions  that  are  calculated  to  remedy  harms  that  we  have  determined  are  unlikely  to  occur.  EchoStar  worries  that  the  sharing  of  information  about  requests  for 


 retransmission  request  between  News  Corp.  s  owned  and  operated  television  stations  and  DirecTV  will  allow  DirecTV  to  engage  in  strategic  actions  that  will  reduce  EchoStars  incentives  to  introduce  local-into- 
 local  service  in  additional  markets.  619  We  find  this  harm  unlikely  to  occur.  Evidence  in  the  record  indicates  that  [REDACTED].  620 


 217.  Many  of  the  proposed  conditions  attempt  to  remedy  the  harms  we  have  identified,  but  in  our  opinion  either  fail  to  remedy  the  harms  or  place  the  Applicants  at  a  disadvantage  relative  to  their 
 positions  prior  to  the  transaction.  For  example,  Cablevisions  proposal  to  require  the  waiver  of  retransmission  consent  for  News  Corp.  s  owned  and  operated  stations  only  in  areas  served  by  Cablevision 
 fails  to  fully  address  the  harms.  Our  analysis  demonstrates  that  consumers  in  nearly  all  areas  of  the  country  are  likely  to  be  harmed  by  the  transaction.  In  addition,  applying  Cablevisions  condition  to  all  of 
 News  Corp.  s  owned  and  operated  stations  would  put  News  Corp.  at  a  distinct  disadvantage  in  obtaining  carriage  of  its  cable  networks  relative  to  other  broadcast  station  owners  with  affiliated  cable  programming 
 networks  such  as  Viacom  and  Disney. 
 218.  Conditions.  We  impose  several  conditions  on  News  Corp  that  combine  the  most  attractive  aspects  of  several  proposals  in  the  record.  At  the  outset,  in  terms  of  stations  covered  by  our 


 remedy,  we  realize  that  today  News  Corp.  does  not  negotiate  retransmission  consent  agreements  on  behalf  of  independently  owned  network  affiliates.  621  However,  our  analysis  indicates  that  the  harms  we  believe 
 will  occur  in  markets  served  by  News  Corp.  s  owned  and  operated  stations  could  also  occur  in  markets  served  by  broadcast  stations  affiliated  with  the  Fox  network.  Since  these  stations  do  not  possess  an 
 ownership  interest  in  DirecTV,  we  are  not  concerned  about  a  substantial  change  in  leverage  in  retransmission  consent  negotiations  except  in  situations  where  News  Corp.  is  able  to  intervene  in  the 
 negotiations.  Accordingly,  we  extend  our  conditions  to  apply  whenever  News  Corp.  negotiates  retransmission  consent  agreements  on  behalf  of  independently  owned  Fox  network  affiliates. 


 219.  We  will  extend  the  commitments  News  Corp.  has  proposed  regarding  non-  discriminatory  access  to  cable  programming  networks  to  encompass  access  to  any  broadcast  station  that  News  Corp. 
 owns  and  operates,  or  on  whose  behalf  it  negotiates  retransmission  consent.  This  will,  as  Consumers  Union  has  noted,  prevent  News  Corp.  from  engaging  in  competitive  abuses  such  as  selling  Fox  broadcast 
 programming  to  DirecTVs  competitors  at  prices  that  are  substantially  and  unjustifiably  higher  than  the  price  paid  by  DirecTV.  Congress  prohibited  non-  discrimination  for  satellite  programming  to  ensure  this 
 programming  was  available  to  competing  MVPDs.  We  believe  that  a  similar  prohibition  toward  News 


 618  ACA  Oct.  17  Ex  Parte  at  11-  12. 
 619  EchoStar  Petition  at  17-  18. 
 620  [REDACTED]. 
 621  Applicants  Response  to  Third  Information  and  Document  Request  at  1-  3. 
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 disadvantage  News  Corp.  relative  to  other  producers  of  video  programming  that  also  own  broadcast  stations,  we  find  the  adverse  consequences  on  News  Corp.  to  be  minimal.  In  the  latest  retransmission 
 consent  cycle,  News  Corp.  granted  retransmission  consent  to  approximately  71%  of  the  cable  operators  serving  markets  in  which  it  owns  and  operates  broadcast  stations  without  seeking  compensation  of  any 
 kind.  627 
 225.  No  later  than  20  business  days  prior  to  the  expiration  of  a  must-  carry  election  or  retransmission  consent  agreement  with  an  MVPD,  News  Corp.  must  provide  the  MVPD  with  a  copy  of 


 the  conditions  imposed  in  this  Order.  News  Corp.  must  provide  a  copy  of  the  conditions  imposed  in  this  Order  within  10  business  days  of  receiving  a  first  time  request  for  retransmission  consent. 


 226.  As  we  observed  above,  the  markets  and  technologies  used  in  the  provision  of  MVPD  services  and  video  programming  continue  to  evolve  over  time,  rendering  accurate  predictions  of  future 
 competitive  conditions  difficult.  Accordingly,  the  conditions  concerning  carriage  of  programming  subject  to  retransmission  consent  shall  cease  to  be  effective  six  years  after  the  release  of  this  Order.  628  The 
 Commission  will  consider  a  petition  for  modification  of  this  condition  if  it  can  be  demonstrated  that  there  has  been  a  material  change  in  circumstance  or  the  conditions  have  proven  unduly  burdensome,  rendering 
 the  condition  no  longer  necessary  in  the  public  interest. 
 d.  Access  to  Programming-  Related  Technologies 
 (i)  Electronic  Program  Guides/  Interactive  Program  Guides 
 227.  Background.  In  this  section  we  examine  the  proposed  transactions  potential  impact  on  the  use  of  electronic  program  guides  (  EPGs)  and  interactive  program  guides  (  IPGs).  An  EPG  is  a 


 software-  based  service  or  device  offered  by  cable  operators  and  other  MVPDs  to  consumers  to  navigate,  organize,  and  differentiate  video  program  offerings.  629  An  IPG  is  an  EPG  that  allows  for  consumer 
 interactivity.  For  example,  a  consumer  with  an  IPG  is  able  to  sort  and  select  programming,  schedule  reminders  for  upcoming  programming,  obtain  additional  information  or  descriptions  about  the 
 programming  or  advertised  products,  as  well  as  purchase  pay-  per-  view  and  video-  on-  demand  programming  using  their  remote  control.  630 


 228.  News  Corp.  holds  a  42.9%  interest  in  Gemstar    TV  Guide  International,  Inc.  (  Gemstar),  the  leading  provider  of  EPGs  and  IPGs.  631  Gemstar  currently  offers  three  guide  products  to 
 MVPDs:  TV  Guide  Channel  (an  EPG),  EPG,  Jr.  (a  text-  only  guide),  and  TV  Guide  Interactive  (an  IPG).  632  News  Corp.  also  states  that  its  subsidiary,  NDS,  has  entered  into  a  patent  agreement  with 


 627  Applicants  Reply  at  46. 
 628  The  six-  year  period  is  intended  to  cover  the  next  two  retransmission  consent  negotiation  cycles. 
 629  See  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  17 
 FCC  Rcd  26901  (2002). 
 630  The  majority  of  the  comments  focused  on  EPGs. 


 631  Application  at  65. 
 632  Gemstar  July  31  Response  at  7. 
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 Gemstar  and  begun  to  offer  an  IPG  in  the  United  States,  although  the  IPG  is  not  yet  operational.  633  The  NDS  IPG  is  offered  only  in  conjunction  with  NDS  conditional  access  technology  and  not  on  a  stand-  alone 
 basis.  634 
 229.  Positions  of  the  Parties.  Several  parties  contend  that  the  proposed  transaction  will  increase  News  Corp.  s  incentive  to  tie  Gemstars  EPG  to  retransmission  consent  negotiations  with 


 unaffiliated  MVPDs  and  that  News  Corp.  s  enhanced  bargaining  power  could  force  these  other  MVPDs  to  use  the  Gemstar  EPG  to  the  exclusion  of  alternative,  preferred  products.  635  Cablevision  contends  that 
 News  Corp.  could  use  its  increased  leverage  in  retransmission  consent  negotiations  with  Cablevision  and  Rainbow  DBS  to  force  them  to  carry  the  Gemstar  EPG.  636  Cablevision  also  contends  that  News  Corp., 
 through  DirecTV,  is  guaranteed  access  to  an  MVPD  platform  even  if  cable  operators  do  not  agree  to  use  the  Gemstar  EPG  as  a  condition  for  access  to  the  Fox  O&  O  broadcast  stations.  637  JCC  argue  that  News 
 Corp.,  in  a  carriage  dispute,  could  use  the  EPG  to  exploit  subscriber  dislocation  and  resentment  associated  with  dropped  channels,  through  heightened  promotion  of  DirecTV  or  by  placing  text  messages 
 and  click-  through  DirecTV  marketing  materials  on  the  EPG  channel  slot  normally  associated  with  the  dropped  service.  638  JCC  note  the  DOJs  position  that  EPGs/  IPGs  are  a  relevant  antitrust  product  market 
 and  contend  that  EPGs  are  a  necessary  component  of  cable  operator  product  offerings.  639  They  claim  that  cable  operators  that  have  committed  to  upgrade  their  systems  would  not  regard  incompatible  EPGs  as 
 viable  substitutes  and  are  thus  locked  in  to  agreements  with  Gemstar.  640  JCC  and  ACA  claim  that  News  Corp.  could  use  its  control  of  Gemstar  to  disadvantage  DirecTVs  rivals  by  raising  the  costs  of  the 
 Gemstar  EPG  or  otherwise  discriminating  against  cable  operators,  including  small  cable  operators,  in  the  content,  unique  features,  or  license  terms  and  conditions  offered  to  these  competitors.  641  The  JCC  argue 
 that  the  proposed  transaction  threatens  to  give  new  impetus  to  anti-  competitive  leveraging  of  Gemstar/  TV  Guides  dominance  in  the  EPG  marketplace.  642 


 230.  News  Corp.  contends  that  any  competitive  concerns  regarding  its  42.9%  control  of  Gemstar  are  unwarranted  because  DirecTV  has  only  a  small  share  of  the  MVPD  market  and  that,  in 
 633  News  Corp.  July  28  Response  at  27-  29.  According  to  News  Corp.,  [  t]  o  date,  NDS  has  entered  into 
 agreements  to  provide  its  IPG  product  to  only  two  MVPDs:  (1)  a  single  RCN  system  in  the  Chicago  area;  and  (2)  the  DBS  system  planned  by  a  Cablevision  subsidiary,  R/  L  DBS.  Id.  at  27. 


 634  Id.  at  27.  News  Corp.  also  states  that  NDS  has  received  no  revenue  in  exchange  for  distribution  of  its  IPG 
 product  and  that  the  IPG  will  not  carry  advertising.  Id.  at  28. 
 635  Cablevision  Comments  at  20-  22;  CDD  Petition  at  3-  4;  EchoStar  Petition  at  24-  25;  JCC  Comments  at  48-  49; 
 NAB  Comments  at  20;  NRTC  Petition  at  14-  15;  ACA  Reply  at  9;  JCC  Reply  at  8-  9. 
 636  Cablevision  Comments  at  21. 


 637  Cablevision  Comments  at  3. 
 638  JCC  Comments  at  48. 
 639  Id.  at  49  n.  120  (citing  U.  S.  v.  Gemstar  and  TV  Guide,  CV  No.  1:  03CV00198,  (D.  D.  C.,  filed  Feb.  6,  2003)). 
 640  Id.  at  49. 
 641  JCC  Comments  at  49;  ACA  Reply  at  9. 
 642  JCC  Aug.  4  Ex  Parte  at  14-  15. 
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 practice,  Gemstar  has  not  been  the  default  EPG  for  the  DTH  systems  in  which  News  Corp.  holds  an  interest    for  example,  BSkyB  uses  a  different  EPG  product.  643  News  Corp.  s  argument  is  premised  on 
 the  Commissions  decision  regarding  the  lack  of  potential  harm  from  an  EPG/  MVPD  affiliation  in  the  AT&  T-  MediaOne  transaction,  where  AT&  Ts  acquisition  of  Media  One  was  found  to  pose  no  threat  to 
 competition  in  the  EPG  marketplace.  644  In  AT&  T-  MediaOne,  the  Commission  identified  three  potential  harms  from  an  EPG/  MVPD  affiliation:  (1)  the  MVPD  could  steer  subscribers  toward  affiliated  content 
 providers;  (2)  the  MVPD  could  harm  unaffiliated  EPG  providers  by  selecting  affiliated  EPGs  for  its  system;  and  (3)  the  MVPD  could  lock  EPG  providers  into  exclusive  contracts  that  would  prevent  them 
 from  dealing  with  other  MVPDs.  645  The  Commission  found  that  the  requirement  that  AT&  T  reduce  its  attributable  cable  system  ownership  interests  was  sufficient  to  circumscribe  AT&  Ts  alleged  ability  to 
 harm  unaffiliated  content  providers,  unaffiliated  EPGs,  and  other  MVPDs  because  AT&  T,  post-divestiture,  would  serve  a  smaller  share  of  the  MVPD  market.  646  Although  AT&  T  held  a  comparable 
 interest  to  News  Corp.  in  TV  Guide  (a  corporate  predecessor  of  Gemstar),  News  Corp.  argues  that  there  is  no  basis  for  concern  here  because  DirecTV  has  a  much  smaller  share  of  the  MVPD  market  than  that 
 allowed  in  the  AT&  T-  MediaOne  transaction.  647 
 231.  NRTC,  however,  contends  that  the  potential  for  vertical  foreclosure  and  discrimination  in  favor  of  News  Corp.  s  EPG  is  greater  here  than  in  the  case  of  AT&  T-  MediaOne  because  cable  was  subject 


 to  a  30%  ownership  (coverage)  cap  while  full-  CONUS  DBS  operators  such  as  DirecTV  have  100%  nationwide  coverage  and  no  market  share  cap.  648  In  addition,  CDD  argues  that  given  Gemstars 
 penetration  to  approximately  100  million  people  in  the  United  States,  the  importance  in  controlling  the  EPG  cannot  be  understated  and  it  urges  the  Commission  to  examine  all  the  proprietary  technologies  and 
 intellectual  property  relationships  involving  Gemstar  to  determine  the  impact  that  this  News  Corp.  -controlled  entity  will  have  on  a  wide  number  of  markets,  including  consumer  electronics,  VCR-  plus,  and 
 set-  top  boxes.  649  According  to  Cablevision  and  EchoStar,  Gemstar  has  aggressively  asserted  its  patent  rights  in  litigation  against  competing  EPG  providers  and  users  of  EPGs,  taking  a  broad  view  that  its 
 patents  encompass  the  use  of  EPGs,  including  the  interactive  grid  guide.  650  EchoStar  argues  that  Gemstar,  should  it  prevail  on  its  patent  claims,  would  exert  monopoly  power  over  all  EPG  providers, 
 including  EchoStar.  651  EchoStar  also  argues  that  News  Corp.,  with  an  assured  distribution  outlet  in 


 643  Application  at  66-  67. 
 644  Id.  at  65-  67  (citing  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214 
 Authorizations  from  MediaOne  Grop,  Inc.,  Transferor,  to  AT&  T  Corp.,  Transferee,  15  FCC  Rcd  9816,  9856-  58  (2000)  (  AT&  T-  MediaOne)). 


 645  AT&  T-  MediaOne,  15  FCC  Rcd  at  9857    89. 
 646  AT&  T-  MediaOne,  15  FCC  Rcd  at  9857-  58    90. 
 647  Application  at  66.  See  also  Applicants  Nov.  14  Ex  Parte  at  2. 
 648  NRTC  Petition  at  14-  15. 
 649  CDD  Petition  at  3-  4. 
 650  Cablevision  Comments  at  21;  EchoStar  Petition  at  24. 
 651  EchoStar  Petition  at  25.  On  June  19,  2003,  the  U.  S.  District  Court  in  Atlanta  granted  EchoStar's  motion  for 
 summary  judgment  against  Gemstar  concerning  issues  involving  a  patent  for  electronic  program  guide  technology.  EchoStar  filed  suit  against  Gemstar  in  December  2000,  accusing  the  company  of  violating  federal  and  state 


 (continued.) 
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 DirecTV,  would  be  unfettered  to  extract  unreasonable  fees  or  other  terms  and  conditions  relating  to  its  programming  assets  by  leveraging  its  market  power  in  the  EPG  realm.  652  EchoStar  and  the  JCC  request 
 that  the  Commission  clarify  that  program  access  rules  would  extend  to  EPGs  and  [  p]  rohibit  the  tying  of  any  non-  programming  intellectual  property  rights  to  the  carriage  of  programming.  653 


 232.  CDD  also  states  that  Fox  stations  have  been  given  a  preferred  position  on  the  IPG  in  their  designated  market  areas  and  that  Gemstar  has  the  right  to  transmit  IPG  data  in  the  vertical  blanking 
 interval  of  each  Fox  O&  O  broadcast  station.  654  CDD  also  contends  that  Gemstars  licensing  arrangements  with  MSOs  under  which  it  shares  a  portion  of  the  interactive  platform  advertising  revenue 
 that  it  generates  through  the  MSO  raises  questions  about  the  integration  of  News  Corp.  business  operations  with  the  cable  industry,  its  primary  competitor.  655 


 233.  In  response,  News  Corp.  points  out  that  the  Commission  concluded  in  AT&  T-  MediaOne  that  concerns  relating  to  the  EPG  marketplace  are  more  appropriately  addressed  in  a  general,  industry 
 wide,  rulemaking  and  thus  the  Commission  has  made  clear  that  an  individual  transfer  application  would  not  be  the  proper  forum  in  which  to  address  EPG-  specific  issues.  656  News  Corp.  claims  that  the 
 Commissions  decision  in  AT&  T-  MediaOne  established  the  general  proposition  that  an  MVPD  with  less  than  30%  of  MVPD  subscribers  would  not  have  the  ability  to  use  a  commonly-  owned  EPG  to 
 disadvantage  other  MVPDs,  other  programmers,  or  other  EPG  providers  and  thus  the  transaction  will  have  no  such  adverse  consequences.  657  News  Corp.  finds  that  virtually  all  of  the  concerns  raised  by  the 
 parties  are  irrelevant  to  this  proceeding  because  they  are  wholly  speculative  and  in  no  way  arise  from  the  instant  transaction.  658  News  Corp.  argues  that  its  interest  in  the  EPG  technology  platform  already  exists, 
 and  is  not  altered  in  any  way  by  the  proposed  transaction,  and  it  states  that  it  could  attempt  to  use  retransmission  consent  rights  today  to  promote  the  use  of  the  Gemstar  EPG  over  cable  and  satellite 
 MVPDs,  if  such  a  strategy  made  economic  sense.  659 
 234.  Discussion.  We  find  that  many  of  the  harms  alleged  are  unrelated  to  this  transaction.  The  alleged  harms  arising  from  joint  control  of  video  programming  assets  and  program  guides  can  occur 


 regardless  of  this  transaction.  Under  our  general  rulemaking  authority,  we  have  committed  to  monitor  developments  with  respect  to  the  availability  of  electronic  programming  guides  to  determine  whether  any 


 (Continued  from  previous  page)  antitrust  laws.  Gemstar  counterclaimed,  accusing  EchoStar  of  infringing  on  two  patents.  Gemstar  is  expected  to 
 reinstate  it  patent  claims  and  seek  a  new  court  decision  sometime  in  2004.  See  SkyReport,  Jun.  20,  2003,  DISH  Wins  Patent  Case  Vs.  Gemstar,  at  http://  www.  skyreport.  com/  viewskyreport.  cfm?  ReleaseID=  1148. 


 652  EchoStar  Petition  at  25. 
 653  EchoStar  Petition  at  61,  65-  66;  JCC  Reply  at  8-  9. 
 654  CDD  Petition  at  4. 
 655  Id. 
 656  Id.  at  50-  51. 
 657  Id.  at  52. 
 658  Id.  at  51. 
 659  Id. 
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 action  is  appropriate  in  the  future.  660  To  the  extent  that  evidence  accrues  that  demonstrates  the  necessity  of  Commission  action  regarding  the  availability  of  EPGs,  we  will  consider  it  at  that  time.  661 
 235.  An  alleged  harm  that  is  specific  to  this  transaction  involves  News  Corp.  s  purported  ability  to  disadvantage  its  MVPD  rivals  through  either  permanent  or  temporary  foreclosure  of  electronic 
 and  interactive  program  guides  during  contract  negotiations  and  using  threats  of  these  actions  to  extract  additional  concessions.  We  analyze,  in  turn,  the  likelihood  of  News  Corp.  engaging  in  such  a  strategy  for 
 each  of  the  three  program  guide  products  sold  by  its  subsidiary,  Gemstar-  TV  Guide:  the  TV  Guide  Channel,  EPG  Jr.,  and  TV  Guide  Interactive. 


 236.  The  program  guide  feature  of  the  TV  Guide  Channel  consists  of  a  scrolling  list  of  programming  organized  by  the  channels  carried  by  the  cable  system.  The  TV  Guide  Channel  is  available 
 to  approximately  50  million  MVPD  subscribers.  We  find  that  while  this  product  possesses  a  large  market  share,  News  Corp.  will  be  unable  to  use  its  acquisition  of  control  of  DirecTV  to  extend  its  dominance  in 
 the  EPG  market  because  of  the  relative  ease  by  which  competing  video  programming  producers  could  enter  the  market  or  MVPDs  could  choose  to  self-  supply.  In  addition,  the  substitutes  available  to  both 
 consumers  and  MVPDs  should  limit  the  shift  of  subscribers  from  rival  MVPDs  to  DirecTV  should  News  Corp.  attempt  to  engage  in  foreclosure.  We  do  not  find  high  barriers  to  entry  to  this  market  given  the 
 common  technology  used  to  implement  an  on-  screen  display  of  programming  information  as  well  as  the  existence  of  an  independent  supplier  of  consolidated  program  listings  data.  662  This  should  eliminate  any 
 increased  incentives  arising  from  the  transaction  for  News  Corp.  to  engage  in  permanent  foreclosure.  In  the  event  of  attempted  temporary  foreclosure,  the  substitutes  available  to  consumers,  which  include 
 newspapers,  magazines,  and  the  Internet,  are  more  than  adequate  to  carry  them  through  any  temporary  withdrawal  of  the  EPG  and  therefore  limit  the  numbers  that  might  switch  to  DirecTV. 


 237.  With  respect  to  the  EPG  Jr.  product,  a  text-  only  program  guide,  we  find  that  News  Corp.  does  not  possess  the  necessary  market  power  to  engage  in  the  harms  alleged  by  the  opponents  to  this 
 transaction.  [REDACTED].  663 
 238.  The  TV  Guide  Interactive  product  is  an  on-  screen  listing  of  television  program  information  with  interactive  functions  that  enable  viewers  to  navigate,  sort,  select  and  schedule  television 


 programming  for  viewing  using  a  remote  control.  664  Post-  transaction,  News  Corp.  will  acquire  an  interest 
 660  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996,  Commercial  Availability  of  Navigation 
 Devices,  13  FCC  Rcd  14775,  14820    116  (1998).  We  are  also  exploring  EPG-  related  issues  in  other  pending  rulemaking  proceedings.  See  Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment,  15 


 FCC  Rcd  17568  (2000);  Nondiscrimination  in  the  Distribution  of  Interactive  Television  Services  Over  Cable,  16  FCC  Rcd  1321  (2001);  Carriage  of  Digital  Television  Broadcast  Signals,  16  FCC  Rcd  2598  (2001). 


 661  We  have  also  sought  comment  on  the  development  and  deployment  of  EPGs  and  the  technologies  used  to 
 provide  them  to  consumers.  See  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  18  FCC  Rcd  16042,  16049  (2003). 


 662  Tribune  Media  Services  provides  listings  of  program  information  to  competing  EPG/  IPGs,  as  well  as 
 newspapers,  magazines,  and  other  media.  In  addition,  we  note  that  since  the  original  information  on  programming  is  supplied  by  programmers  themselves,  an  MVPD  could  collect  this  data  on  its  own. 


 663  [REDACTED]. 
 664  See  Gemstar-  TV  Guide,  TV  Guide  Interactive,  at  http://  www.  gemstartvguide.  com/  whatwedo/  ipgproducts.  asp 
 (visited  Nov.  6,  2003). 
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 in  the  DirecTV-  produced  IPG.  Under  some  situations,  this  might  raise  concerns  that  the  acquisition  will  enhance  News  Corp.-  controlled  Gemstars  ability  to  affect  the  price  of  IPGs.  However,  DirecTV  is  not 
 currently  selling  its  IPG  to  other  MVPDs.  665  Although  the  transaction  will  result  in  an  increase  in  concentration  in  the  IPG  market,  because  DirecTV,  like  the  other  large  MSOs,  does  not  resell  its  IPG 
 product,  it  is  doubtful  that  this  structural  change  will  cause  a  change  in  the  behavior  of  market  participants.  We  therefore  do  not  find  that  control  of  DirecTVs  IPG  product  would  enhance  News 
 Corp.  s  ability  to  restrict  the  supply  of  IPGs  and  thereby  influence  price. 
 239.  Our  concern  regarding  potential  vertical  harms  attributable  to  the  share  of  the  IPG  market  controlled  by  News  Corp.  is  mitigated  by  several  factors.  First,  we  note  that  [REDACTED].  666 


 [REDACTED].  We  also  note  that  the  current  competitors  in  the  market,  as  well  as  the  most  likely  entrants,  are  firms  that  manufacture  set-  top  boxes.  667  These  are  firms  with  existing  relationships  with 
 MVPDs  and  provide  one  of  the  necessary  inputs  --  set-  top  boxes  --  that  are  required  in  order  for  the  subscriber  to  use  an  IPG.  Attempts  by  News  Corp.  to  raise  prices  for  TV  Guide  Interactive  are  likely  to 
 be  countered  by  MVPDs  switching  to  alternative  suppliers  with  whom  they  have  existing  relationships.  [REDACTED].  668  Thus,  we  do  not  find  that  the  proposed  transaction  will  likely  produce  consumer  or 
 competitive  harms  related  to  access  to  interactive  program  guides. 
 240.  Our  conditions  for  RSN  and  retransmission  consent  negotiations  should  alleviate  the  concerns  raised  by  the  commenters  regarding  News  Corp.  s  ability  to  use  a  tying  strategy  to  leverage 


 RSNs  or  retransmission  consent  rights  to  increase  the  use  or  price  of  the  Gemstar  EPG.  669  As  we  indicated  above,  given  the  nature  of  the  IPG  market,  at  present  any  such  benefit  from  tying  must  come 
 from  News  Corps  market  power  as  a  source  of  other  essential  programming.  Because  the  conditions  we  impose  are  intended  to  neutralize  any  additional  market  power  created  by  the  proposed  transaction  in 
 these  areas,  News  Corp.  should  not  be  able  to  successfully  tie  the  purchase  of  the  Gemstar  products  to  its  RSN  or  local  broadcast  programming  in  order  to  garner  more  market  power  in  the  EPG/  IPG  markets  than 
 Gemstar  currently  holds,  as  a  result  of  the  proposed  transaction. 
 241.  Some  parties  have  alleged  that  News  Corp.,  through  patent  litigation  initiated  by  Gemstar-  TV  Guide,  has  the  opportunity  to  monopolize  the  IPG  market.  This  in  and  of  itself  is  not  a 


 merger  specific  issue.  Moreover  we  observe  that  such  claims  are  already  an  area  of  substantial  litigation.  [REDACTED]  670  --  we  find  that  this  issue  does  not  warrant  specific  attention  in  this  license  transfer 
 review  proceeding.  The  Commission  will,  however,  continue  to  monitor  the  situation. 
 (ii)  Interactive  Television 
 242.  Background.  The  Commission  has  yet  to  define  interactive  television  (  ITV)  or  classify 
 665  In  addition,  [REDACTED]. 
 666  [REDACTED]. 
 667  Pioneer  and  Scientific  Atlanta  accounted  for  nearly  43%  of  digital  set-  top  boxes  shipped  in  2001  according  to 
 Kagan  Media  Trends  2003. 
 668  [REDACTED]. 


 669  See  Section  VI.  C.  4.  b  and  c,  supra,  and  Section  IX,  infra. 
 670  [REDACTED] 
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 ITV  for  regulatory  purposes  under  the  Communications  Act,  but  has  broadly  characterized  ITV  as  a  service  or  suite  of  services  that  support  subscriber-  initiated  choices  or  actions  that  are  related  to  one  or 
 more  video  programming  streams.  671  Services  providing  such  capabilities  may  include  video-  on-  demand,  personal  video  recorder,  gaming,  e-  mail,  TV-  based  e-  commerce  (  t-  commerce),  interactive  advertising, 
 interactive  program  guides,  Internet  access,  and  program-  related  enhanced  content.  672  Although  not  requiring  a  return  path,  service  offerings  such  as  electronic  program  guides,  might  also  fit  within  the  ITV 
 category.  A  number  of  companies  are  involved  in  developing  the  technical  standards,  equipment  and  software  necessary  to  provide  ITV  services.  673  In  connection  with  its  review  of  the  American  Online 
 (  AOL)    Time  Warner  merger,  the  Commission  issued  a  Notice  of  Inquiry  to  consider  whether  industry-  wide  rules  were  needed  to  address  any  impediments  to  the  development  of  ITV  services  and 
 markets,  particularly  with  respect  to  cable-  delivered  ITV  services.  674  In  AOL-  Time  Warner,  the  Commission  concluded  that  the  newly  formed  company  had  the  incentive  and  potential  ability  to  use  its 
 combined  control  of  cable  system  facilities,  video  programming,  and  the  AOLTV  interactive  service,  to  discriminate  against  unaffiliated  video  programming  networks  in  the  provision  of  ITV  services.  675  The 
 Commission  held,  however,  that  the  terms  of  the  Federal  Trade  Commissions  AOL-  Time  Warner  Consent  Agreement  regarding  ITV  would  substantially  address  concerns  about  the  availability  of 
 alternatives  for  the  distribution  of  unaffiliated  video  programming  networks  ITV  services.  676  Although  the  Commission  concluded  that  no  further  merger-  related  restrictions  pertaining  to  ITV  were  warranted,  it 


 671  See  Nondiscrimination  in  the  Distribution  of  Interactive  Television  Services  Over  Cable,  16  FCC  Rcd  1321, 
 1323  (2001)  (  ITV  NOI).  In  the  ITV  NOI,  the  Commission  noted  that  ITV  was  rapidly  developing,  thus  making  it  difficult  to  define  with  specificity  the  precise  universe  of  services  that  might  be  encompassed  within  the  term. 


 For  purposes  of  discussion,  the  ITV  NOI  instead  attempted  to  identify  the  major  technical  resources  or  building  blocks  necessary  for  the  provision  of  what  it  understood  to  be  likely  ITV  services.  Id.,  16  FCC  Rcd  at  1329.  The 
 identified  components  were:  (1)  a  video  transmission  capacity  associated  with  interactive  content  (e.  g.,  the  digital  video  stream),  (2)  a  two-  way  connection  (e.  g.,  via  the  Internet),  and  (3)  specialized  customer  premises  equipment 
 (e.  g.,  the  interactive  television  set-  top  box).  Id.,  16  FCC  Rcd  at  1324-  25. 
 672  See  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  17 
 FCC  Rcd  26901,  26971  (2002)  (  2002  Video  Competition  Report). 
 673  Major  ITV  middleware  and  content  providers  include  Libertys  OpenTV,  ACTV,  and  Wink;  Liberate, 
 Worldgate;  and  GoldPocket  Interactive.  See  2002  Video  Competition  Report,  17  FCC  Rcd  at  26972.  News  Corp.-  controlled  NDS  recently  announced  its  acquisition  of  Thomsons  MEDIAHIGHWAY,  another  ITV 


 middleware  provider.  See  NDS  Acquires  Thomsons  MEDIAHIGHWAY  and  Enters  into  Strategic  Alliance  with  Thomson  on  Provision  of  Middleware  (press  release),  Sept.  13,  2003.  NDS  has  also  entered  into  an  agreement 
 with  itaas,  Inc.  to  provide  support  services  to  NDS  for  the  development  of  interactive  applications  for  Scientific-Atlantas  Explorer  set-  top  boxes.  See  NDS  Selects  itaas  Program  to  Support  Development  of  Advanced 
 Interactive  TV  Applications,  (press  release),  July  28,  2003. 
 674  See  ITV  NOI. 


 675  See  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorization  by  Time 
 Warner,  Inc.  and  America  Online,  Inc.  to  AOL  Time  Warner,  Inc.,  16  FCC  Rcd  6547  (2001)  (  AOL-  Time  Warner). 


 676  Id.  at  6646.  The  FTC  ordered  AOL-  Time  Warner  not  to  discriminate  in  the  transmission  and  carriage  of 
 interactive  content  and  forbade  AOL-  Time  Warner  from  blocking  or  otherwise  interfering  with  interactive  content  transmitted  by  an  unaffiliated  ISP.  The  FTC  Consent  Agreement  also  prohibited  AOL-  Time  Warner  from 


 blocking  subscribers  access  to  any  interactive  content  that  is  carried  on  the  AOL-  Time  Warner  facilities  and  thus  enabled  subscribers  to  access  such  content  as  part  of  an  ITV  service  provided  by  an  unaffiliated  entity.  Id. 
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 did  find  that  open  questions  regarding  distribution  of  ITV  services  warranted  further  examination  in  the  aforementioned  proceeding  of  general-  applicability.  The  ITV  NOI  remains  pending. 
 243.  Positions  of  the  Parties.  NAB  and  CDD  argue  that  the  proposed  transaction  would  result  in  a  single  entity  with  control  over  both  content  and  distribution  and  therefore  allow  News  Corp.  to  act  as 
 a  gatekeeper  with  the  ability  and  the  incentive  to  discriminate  against  unaffiliated  providers  of  content  and  services,  including  providers  of  ITV  and  other  emerging  communications  services.  677  NAB  contends 
 that  discrimination  could  take  many  forms  such  as  the  denial  of  access  to  the  DBS  platform  or  in  such  technology  related  areas  as  interactivity,  channel  assignment  and  positioning,  use  of  navigation  devices 
 and  electronic  program  guides,  data  transfer  speed,  and  downstream  and  return  path  traffic.  678  CDD  argues  that  the  relationship  between  News  Corp.  and  Liberty  Media,  which  controls  Open  TV  and  Wink, 
 and  has  a  stake  in  ACTV  and  significant  cable  programming  interests,  will  impact  the  emerging  ITV  marketplace  by  disadvantaging  competing  program  suppliers  and  technology  companies.  679 


 244.  In  response,  the  Applicants  argue  that  they  do  not  have  sufficient  market  power  in  any  relevant  product  or  geographic  market  to  profitably  engage  in  anti-  competitive  foreclosure.  680  They 
 further  contend  that  the  harms  proffered  by  the  parties  are  speculative  and  are  not  transaction-  specific  and  therefore  do  not  provide  a  basis  either  for  denying  their  Application  or  for  imposing  regulatory 
 conditions.  681  The  Applicants  also  state  that  News  Corp.  has  no  ownership  interest  in  and  no  agreements  pending  to  acquire  an  interest  in  Liberty  Media.  682  The  Applicants  further  state  that  DirecTV  will  not 
 enter  into  exclusive  arrangements  for  satellite  cable  programming  with  affiliated  program  rights  holders  including  Liberty,  and  will  not  unduly  or  improperly  influence  the  decision  of  such  rights  holders  to  sell 
 satellite  cable  programming  to  other  MVPDs,  or  the  prices,  terms  and  conditions  of  such  sale.  683 
 245.  Discussion.  In  other  proceedings,  the  Commission  has  found  that  the  interactive  television  market  in  the  U.  S.  is  nascent  and  to  date  commercial  two-  way  interactive  service  deployments 


 have  been  very  limited.  684  In  our  2002  Video  Competition  Report,  we  reported  that  [  c]  able  MSOs  and 
 677  NAB  Comments  at  20;  CDD  Nov.  3  Ex  Parte  at  1-  2. 
 678  Id. 
 679  See  CDD  Petition  at  4;  CDD  Nov.  3  Ex  Parte  at  1-  2;  CDD  Nov.  17  Ex  Parte  at  3-  4.  CDD  refers  to  Libertys 
 present  and  potential  future  investment  in  News  Corp.  (citing  SEC  10Q  filing,  5/  14/  03).  OpenTV  provides  interactive  television  technology  and  content  for  the  cable,  satellite  and  terrestrial  broadband  industries.  See 


 OpenTV  Homepage  at  http://  www.  opentv.  com  (visited  Sept.  11,  2003).  Wink  is  a  free  interactive  television  service,  distributed  through  partnership  agreements  with  cable  and  satellite  operators,  broadcasters,  advertisers, 
 and  equipment  manufacturers,  that  provides  viewers  with  the  ability  to  access  enhanced  programs  or  advertisements  via  the  remote  control  while  continuing  to  watch  television.  See  Wink  Homepage  at 
 http://  www.  wink.  com  (visited  Sept.  11,  2003).  On  July  1,  2003,  ACTV  was  acquired  by  OpenTV.  See  OpenTV  Completes  the  Acquisition  of  ACTV  (press  release),  Jul.  1,  2003. 


 680  Applicants  Reply  at  12-  23. 
 681  Id.  at  50-  51. 
 682  News  Corp.  July  28  Response  at  25. 
 683  Applicants  Nov.  14  Ex  Parte  at  4  (citing  Application  at  61-  63). 
 684  2002  Video  Competition  Report,  17  FCC  Rcd  at  26972    170. 
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 DBS  operators  continue  to  develop  these  services  as  measures  to  increase  subscribership,  develop  new  streams  of  revenue,  and  reduce  churn.  685  The  Report  also  indicated  that  the  multiple  but  incompatible 
 platforms  in  use  today  have  slowed  the  development  of  ITV  content  and  applications.  686  Accordingly,  we  agree  with  the  Applicants  that  DirecTVs  share  of  the  MVPD  market  is  too  small  to  enable  the  merged 
 entity  to  exercise  market  power  in  any  ITV  market.  Until  this  market  develops  further,  the  vertical  harms  alleged  by  NAB  and  CDD  are  speculative  at  best.  687  We  therefore  find  that  this  transaction  would  not 
 create  any  public  interest  harm  in  this  particular  line  of  business.  We  will,  however,  continue  to  monitor  the  development  of  interactive  television  technologies  and  services.  688 


 246.  With  respect  to  CDDs  allegation  regarding  Liberty,  we  are  not  convinced  that  Libertys  unreciprocated  financial  interest  in  News  Corp.  will  induce  DirecTV  to  ignore  its  customers  and  the 
 profits  they  generate,  and  instead  provide  programming  that  its  customers  may  not  want.  Our  analyses  of  the  vertical  issues  in  this  transaction  hinge  on  the  assumption  that  News  Corp.  and  DirecTV  will  act  to 
 maximize  their  profits.  CDDs  allegation  assumes  that  DirecTV  will  act  in  a  contrary  manner,  which  we  find  implausible.  Liberty  Media  and  News  Corp.  do  not  share  any  members  of  their  Boards  of 
 Directors.  689  While  it  is  true  that  Liberty  owns  a  substantial  share  of  News  Corp.  stock,  this  stock  carries  only  limited  voting  rights  that  do  not  include  a  vote  on  the  nominees  for  the  Board  of  Directors.  A  formal 
 mechanism  does  not  exist,  beyond  arms  length  market  transactions,  by  which  Liberty  Media  can  influence  the  programming  choices  of  DirecTV. 


 (iii)  Conditional  Access  Technology  and  Set-  top  Boxes. 
 247.  Positions  of  the  Parties.  Cablevision,  CDD,  and  EchoStar  argue  that  News  Corp.  s  control  of  DirecTV  and  NDS  would  give  it  the  incentive  and  ability  to  discriminate  against  MVPD 


 competitors  in  its  provisioning  of  conditional  access  technology  and  interactive  applications.  690  Sun  Microsystems  alleges  no  particular  transaction-  specific  harm  but  requests  that  the  Commission  require  or 
 at  a  minimum  encourage  DirecTV  to  migrate  to  Multimedia  Home  Platform  (  MHP)  based  set-  top  box  standards,  which  will  allow  for  interoperability  with  CableLabs  Open  Cable  Application  Platform 


 685  2002  Video  Competition  Report,  17  FCC  Rcd  at  26972. 
 686  Id. 
 687  We  note  that  NAB  raised  similar  concerns  regarding  a  cable  operators  ability  to  dominate  the  ITV  market  in 
 the  ITV  NOI  proceeding.  As  we  reported  in  the  2002  Video  Competition  Report,  we  have  seen  no  evidence  of  such  domination  in  the  current  marketplace. 


 688  The  Commission  recently  issued  the  2003  Video  Competition  Notice  in  which  we  sought  comment  on  the 
 development  and  deployment  of  ITV  services  and  the  technologies  used  to  provide  them.  See  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  18  FCC  Rcd  16042,  16049 


 (2003)  (  2003  Video  Competition  Notice). 
 689  Application,  Attachments  -  Volume  I  at  C-  3  and  Liberty  Media  Corp.,  Notice  of  Annual  Meeting  of 
 Shareholders,  at  http://  www.  libertymedia.  com/  investor_  relations/  pdfs/  annualmeeting_  2003.  pdf  (visited  Oct.  2,  2003). 


 690  Cablevision  Comments  at  22;  CDD  Petition  at  4;  EchoStar  Petition  at  38,  60;  CDD  Nov.  3  Ex  Parte  at  1-  2; 
 CDD  Nov.  17  Ex  Parte  at  2. 
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 (  OCAP)  and  ATSCs  Digital  Application  Software  Environment  (  DASE).  691  CDD  contends  that  the  Application  should  be  denied  or  at  least  conditioned  on  Applicants  providing  non-  discriminatory  access 
 to  all  related  distribution  technologies  and  devices,  including  conditional  access  and  interactive  marketing  software/  processing.  692 


 248.  The  Applicants  respond  that  the  harms  alleged  by  the  respective  commenters  are  speculative  and,  therefore,  do  not  provide  a  basis  for  either  denying  their  Application  or  for  imposing 
 regulatory  conditions.  693  They  also  argue  that  Suns  requested  condition  falls  outside  the  scope  of  this  proceeding  because  it  would  conflict  with  the  Commissions  well-  established  policy  against  picking 
 winners  and  losers  among  competing  technologies  and  its  preference  to  let  the  market  decide  such  issues.  694 


 249.  Discussion.  As  the  Applicants  note,  our  preference  is  to  allow  the  market  to  determine  which  technologies  succeed  and  which  fail.  We  see  no  reason  on  the  record  before  us  to  presume  that  the 
 set-  top  box  market  will  fail  to  deploy  the  technologies  that  best  serve  consumers,  and  therefore  decline  to  impose  the  condition  proposed  by  Sun  Microsystems. 


 250.  With  respect  to  conditional  access  systems,  we  find  that  NDS  does  not  possess  sufficient  market  power  in  the  United  States  to  profitably  discriminate  against  competing  MVPDs.  Set-  top  box 
 manufacturers  Scientific-  Atlanta  and  Motorola  are  the  dominant  providers  of  conditional  access  systems  to  domestic  MVPDs.  695  Accordingly,  any  attempt  by  NDS  to  disadvantage  DirecTVs  rivals  would 
 almost  certainly  be  unavailing.  We  do  not  impose  license  conditions  to  mitigate  hypothetical  harms. 
 e.  Access  to  Fixed  Satellite  Services 
 251.  Background.  A  portion  of  the  Application  before  us  involves  the  transfer  of  control  of  the  licenses  of  PanAmSat  from  Hughes  to  News  Corp.  696  PanAmSat  is  a  significant  provider  of  fixed 


 691  Sun  July  30  Ex  Parte  at  1-  2.  MHP  is  an  open  standard  created  in  Europe  establishing  a  common  framework  for 
 content,  application,  and  service  delivery  over  different  transmission  systems.  It  is  based  on  DVB-  J,  which  relies  on  Sun  Microsystem's  Java  Virtual  Machine  specification.  See  DVB-  MHP  -  What  is  MHP?  at 


 http://  www.  mhp.  org/  what_  is_  mhp/  index.  html  (visited  Nov.  18,  2003). 
 692  See  Letter  from  Jeffrey  Chester,  Center  for  Digital  Democracy,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Nov.  7, 
 2003)  at  3  (  CDD  Nov.  7  Ex  Parte). 
 693  Applicants  Reply  at  50-  51;  Applicants  Nov.  14  Ex  Parte  at  2-  3. 


 694  News  Corp.  Aug.  28  Ex  Parte  at  5  (citing  Deployment  of  Wireline  Services  Offering  Advanced 
 Telecommunications  Capability,  13  FCC  Rcd  24011,  24014  (1998);  Policies  and  Rules  for  the  Direct  Broadcast  Satellite  Service,  17  FCC  Rcd  11331,  11376  (2002)). 


 695  Kagan  Media  Trends  2003  at  110  and  NE  Asia  Online,  Sony  Pushes  New  Conditional  Access  Technology,  May 
 2003  at  http://  neasia.  nikkeibp.  com/  nea/  200305/  cojp_  244652.  html  (visited  Oct.  2,  2003). 
 696  See  Application,  Volume  I,  A  for  a  list  of  all  satellite  space  station  authorizations  controlled  by  Hughes;  see 
 also  Application,  Volume  I,  B  for  a  chart  depicting  a  simplified  ownership  structure  of  GM/  Hughes  pre-transaction  FCC  licenses;  see  also  Application,  Volume  I,  D  for  a  chart  depicting  a  simplified  ownership  structure 


 of  Hughes  post-  transaction  FCC  licenses. 
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 satellite  services  (  FSS)  697  in  the  United  States  and  currently  is  81%  owned  by  Hughes.  698  Most  distribution  of  video  programming  to  MVPD  service  providers  (and  to  over-  the-  air  television 
 broadcasters)  is  carried  over  FSS.  Upon  closing  of  the  proposed  transaction,  News  Corp.  would  be,  in  addition  to  its  broadcast  television  and  cable  network  holdings,  both  an  MVPD  and  an  FSS  provider. 


 252.  MVPDs  typically  retransmit  programming  received  from  distant  points,  rather  than  originate  programming  at  the  locale  where  transmission  takes  place.  To  obtain  these  signals,  MVPDs  rely 
 primarily  on  FSS  provided  over  a  number  of  geo-  stationary  orbit  (  GSO)  satellites.  699  For  national  distribution  of  video  programming  within  the  United  States,  a  full  CONUS  satellite  footprint  is 
 needed.  700  A  significant  portion  of  the  capacity  on  FSS  satellites  in  the  United  States  is  dedicated  to  video  distribution.  701 


 253.  There  are  three  major  FSS  operators  licensed  by  the  United  States:  SES  AMERICOM,  PanAmSat,  and  Loral  Space.  702  Other  providers  include  New  Skies,  Anik,  and  various  Latin  American 
 satellites  partly  available  for  North  American  use.  PanAmSat  owns  and  operates  a  fleet  of  22  satellites  that  operate  in  FSS  bands,  and  with  that  capacity  carries  video  programming  for  broadcasters  and  other 
 programmers,  as  well  as  Internet  backbone  support,  communications  network  support  and  pipelines  for  telecommunications  providers.  703  SES  AMERICOM  and  its  subsidiaries  provide  similar  services  through 
 a  fleet  of  18  satellites.  704 
 254.  Applicants  state  that  News  Corp.,  as  one  of  the  worlds  largest  users  of  satellite  video  services,  will  be  able  to  offer  valuable  customer  insight  to  PanAmSat.  705  And,  because  PanAmSat  derives 


 more  than  65%  of  its  revenues  from  carrying  video  services,  Applicants  claim  that  News  Corps  insight  should  prove  an  invaluable  tool  in  devising  strategies  for  developing  new  markets  and  new  services 
 around  the  world.  706  Applicants  argue,  therefore,  that  the  proposed  transaction  will  create  synergies 


 697  FSS  is  defined  as  satellite  service  between  fixed,  as  opposed  to  mobile,  points,  and  excludes  broadcast  satellite 
 service  such  as  DBS. 
 698  See  Application,  Volume  I,  B. 


 699  Non-  geostationary  FSS  also  exist,  but  because  of  cost  and  other  considerations,  video  distribution  is  carried 
 primarily  by  GSO  satellites  operating  in  the  C-  and  Ku-  bands.  In  the  rest  of  this  Order,  when  we  refer  to  FSS  satellites,  we  mean  GSO  FSS  satellites  exclusively. 


 700  The  footprint  of  a  satellite  at  a  CONUS  location  will  include  the  48  contiguous  states. 
 701  See  ING  Barings  Satellite  Communications  Industry,  March  2000  at  149. 
 702  See  SPACE  NEWS,  Jun.  23,  2003,  at  18. 
 703  Application  at  6. 
 704  See  Comments  of  SES  AMERICOM,  Inc.,  In  the  Matter  of  Loral  Satellite,  Inc.  (Debtor  in  Possession)  and 
 Loral  SpaceCom  Corporation  (Debtor-  in-  Possession),  Assignors,  and  Intelsat  North  America  LLC,  Assignee,  Applications  for  Consent  to  Assignments  of  Space  Station  Authorizations,  September  15,  2003,  at  2. 


 705  See  Application  at  44. 
 706  Id. 
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 throughout  Hughes.  707  Further,  Applicants  argue  that  PanAmSats  new  ownership  structure  will  neither  increase  FSS  concentration,  nor  raise  any  prospect  of  competitive  harm  in  the  MVPD  marketplace.  708 
 255.  NRTC,  however,  argues  that  once  News  Corp.  acquires  an  interest  in  PanAmSat,  it  could  manipulate  the  prices  paid  by  broadcasters,  cable  programmers,  and  others  who  rely  on  PanAmSat  for 
 video  distribution  backhaul,  thereby  raising  costs  for  competitors  and  ultimately,  their  customers.  709  Applicants  responded  by  stating  that  PanAmSats  current  market  position  is  essentially  the  same  as  it  was 
 in  October  2002  when  the  Commission  released  its  EchoStar-  DirecTV  HDO  and  found  that  PanAmSats  market  position  was  such  that  any  anti-  competitive  schemes  were  unlikely  to  occur  and  even  more 
 unlikely  to  succeed.    710 
 256.  Discussion.  Although  Hughes  controls  a  significant  share  of  the  FSS  capacity  through  its  ownership  of  the  PanAmSat  satellites,  News  Corp.  does  not  operate  any  FSS  satellites.  Thus,  upon 


 consummation  of  the  proposed  transaction,  News  Corp.  would  control  the  identical  percentage  to  that  controlled  currently  by  Hughes.  It  is  therefore  evident  that  the  proposed  transaction  does  not  increase 
 concentration  in  the  FSS  capacity.  In  addition,  as  we  have  previously  noted,  711  PanAmSat  is  already  under  common  control  with  a  DBS  provider    DirecTV    and  the  proposed  transaction  would  not  change 
 that  situation.  No  opponent  or  commenter  has  made  a  credible  showing  as  to  why  News  Corp.  s  ownership  of  PanAmSat,  as  compared  to  Hughes,    would  adversely  impact  competition  in  the  provision 
 of  FSS,  in  the  video  programming  markets,  or  any  other  relevant  satellite  service  or  market. 
 257.  As  we  have  discussed,  there  are  situations  in  which  it  would  be  profitable  for  an  integrated  firm  to  pursue  a  vertical  foreclosure  strategy  against  downstream  rivals  that  use  the  firms 


 goods  or  services.  712  Thus,  it  is  possible  that  News  Corp,  once  it  has  acquired  PanAmSat,  might  have  an  incentive  to  use  its  market  power  in  the  provision  of  FSS  capacity  (assuming,  arguendo,  that  it  would 
 have  such  power)  to  competitively  harm  video  programming  rivals  who  use  FSS.  For  instance,  News  Corp.  could  degrade  the  quality  of  the  FSS  service  provided  to  rivals,  restrict  supply,  or  raise  the  price  of 
 FSS,  all  in  attempt  to  gain  additional  share  (and  earn  additional  profits)  in  the  video  programming  market. 


 258.  We  find  that  such  attempts  are  unlikely  to  occur  and  even  more  unlikely  to  succeed.  First,  with  PanAmSats  share  of  the  FSS  capacity,  it  remains  doubtful  that  News  Corp.  would  have 
 sufficient  market  power  to  carry  out  such  a  scheme.  Second,  there  appears  to  be  sufficient  excess  capacity  in  the  FSS  market  so  that  if  News  Corp./  PanAmSat  attempted  to  raise  the  rates  it  charges  to  its 
 video  programming  rivals,  or  degrade  the  service  it  provides  to  them,  it  likely  would  lose  these  customers  to  other  FSS  providers.  Thus,  unilateral  restriction  of  FSS  supply  would  likely  be  very  costly  to  News 
 Corp.  and  would  likely  achieve  very  little  in  the  marketplace.  Market  power  in  an  upstream  market  is  a  necessary  condition  for  competitive  harms  to  occur  in  a  vertical  merger.  We  find  no  change  in  the 


 707  Id. 
 708  Id.  at  67. 
 709  NRTC  Petition  at  14. 
 710  See  Applicants  Reply  at  53  (citing  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20659). 
 711  See  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20660. 
 712  See  Section  VI.  C.  1,  supra. 
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 competitive  landscape  that  would  cause  us  to  alter  our  prior  conclusion  that  PanAmSat  possesses  limited  market  power  in  the  provision  of  FSS  capacity.  We  therefore  conclude  that  News  Corp.  s  acquisition  of 
 PanAmSat  will  be  unlikely  to  cause  competitive  harm  in  the  provision  of  FSS  or  in  the  video  programming  markets. 


 VII.  OTHER  POTENTIAL  PUBLIC  INTEREST  HARMS 
 A.  Impact  of  the  Transaction  on  Diversity 
 1.  Background 
 259.  As  stated  above,  the  Commissions  public  interest  review  includes  an  evaluation  of  the  proposed  transactions  affect  on  the  quality  and  diversity  of  communications  services  to  consumers.  713 


 Commenters  have  raised  issues  concerning  the  proposed  transactions  impact  on  program  and  viewpoint  diversity.  Commenters  contend  that  the  transaction  will  adversely  affect  both  program  diversity  and 
 viewpoint  diversity,  either  as  a  direct  result  of  the  combination  of  an  MVPD,  programmer,  and  broadcaster,  or  as  a  result  of  competitive  harms  posed  by  the  transaction.  Applicants  counter  that  the 
 transaction  presents  no  potential  harms  to  viewpoint  diversity  714  and  will  increase  programming  geared  to  linguistic,  ethnic,  and  cultural  minorities.  715  Commenters  disagree,  claiming  that  the  Applicants  have  not 
 shown  that  any  transaction-  specific  benefits  relating  to  diversity  will  result  from  the  proposed  transaction.  716  Below,  we  analyze  the  diversity  issues  raised  by  commenters.  We  conclude  that  potential 
 harms  to  viewpoint  and  program  diversity  will  be  addressed  by  the  conditions  we  are  imposing  on  our  approval  of  the  Application. 


 2.  Program  Diversity 
 260.  Positions  of  the  Parties.  One  of  the  Commissions  goals  is  to  promote  program  diversity,  which  refers  to  the  availability  of  a  variety  of  programming  formats  such  as  comedy,  drama,  and 


 newsmagazines,  as  well  as  specific  content  categories  such  as  health,  business,  food  and  content  targeted  to  ethnic  or  racial  groups.  717  EchoStar  asserts  that  the  transaction  will  have  anticompetitive  effects  on  the 
 market  for  video  programming  which  also  will  harm  diversity.  EchoStar  states  that  the  transaction  would  foreclose  what  is  currently  the  largest  unaffiliated  distribution  network,  and  that  vertical  integration 
 would  reduce  or  eliminate  DirecTVs  incentives  to  offer  programming  that  competes  with  News  Corp.  offerings.  718  EchoStar  contends  that  harm  to  competition  in  the  video  programming  market  could  result 
 in  fewer  viable  independent  programmers,  and  therefore  less  diversity.  719  Cablevision  asserts  that  by 
 713  See  Section  III,  supra;  see  also  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20759-  85    37-  52  (analyzing  the 
 impact  of  the  proposed  transaction  on  viewpoint  and  program  diversity). 
 714  Applicants  Reply  at  65-  67. 


 715  Application  at  39-  43;  Applicants  Sept.  11  Ex  Parte  at  3-  4. 
 716  ACA  Comments  at  28;  JCC  Comments  at  72. 
 717  2002  Biennial  Review  Order,  18  FCC  Rcd  at  13631-  32    36. 
 718  EchoStar  Petition  at  39-  40;  see  also  NRTC  Petition  at  14;  CFA  Reply  Comments  at  9-  12. 
 719  EchoStar  Petition  at  39-  40;  see  also  CFA  Reply  Comments  at  9-  12  (asserting  that  the  diversity  of  program 
 sources  has  eroded  to  the  point  of  extinction) 
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 combining  content,  broadcasting,  and  an  MVPD  platform,  the  transaction  will  give  News  Corp.  substantial  leverage  and  market  power  that  will  result  in  fewer  programming  choices  for  cable  subscribers 
 and  reduced  local  broadcast  programming.  720  Cablevision  repeats  its  claim  that  vertical  integration  with  an  MVPD  would  allow  News  Corp.  to  make  a  credible  threat  that  it  will  withhold  broadcast 
 retransmission  consent  rights,  giving  News  Corp.  leverage  to  demand  carriage  of  its  affiliated  cable  programming.  721  Cablevision  contends  that  this  pressure  to  carry  News  Corp.  programming  would  harm 
 program  diversity  by  thwarting  cable  operators  ability  to  select  the  programming  that  their  subscribers  consider  most  desirable,  including  new  or  independent  programming  services.  722  Cablevision  asserts  that 
 News  Corp.  would  be  using  the  very  rights  conferred  upon  broadcasters  to  promote  diversity  and  localism  to  contravene  those  policy  goals.  723  Commenters  also  assert  that,  after  the  transaction,  News  Corp.  would 
 have  the  incentive  and  ability  to  deny  access  to  its  affiliated  cable  network  programming  to  competing  MVPDs,  which  would  weaken  or  eliminate  these  competitors,  thereby  harming  diversity  in  the 
 distribution  of  video  programming.  724 
 261.  Discussion.  Although  the  Applicants  assert  that  the  proposed  transaction  would  not  harm  program  diversity,  but  would  increase  program  diversity  725  we  find  that,  absent  our  conditions,  the 


 transaction  would  be  likely  to  reduce  program  diversity.  As  we  conclude  above  in  our  discussion  of  the  video  programming  market,  the  transaction  will  enhance  News  Corp.  s  incentive  and  ability  to  engage  in 
 temporary  foreclosure  of  access  to  its  RSN  and  broadcast  television  station  programming  in  order  to  raise  rival  MVPDs  costs  for  News  Corp.  programming  and/  or  secure  other  carriage  concessions.  Such  a 
 strategy  of  foreclosure  would  reduce  program  diversity  on  a  short  term  basis  because  consumers  lack  access  to  the  foreclosed  programming.  In  the  long  run,  the  increased  costs  paid  by  MVPDs  to  News 
 Corp.  also  can  reduce  program  diversity.  For  example,  to  obtain  RSN  or  local  broadcast  station  programming  from  News  Corp.,  an  MVPD  may  accede  to  News  Corp.  s  demands  to  carry  its  affiliated 
 cable  networks,  or  to  pay  supracompetitive  rates  for  News  Corp.  programming.  Absent  these  increased  costs,  the  MVPD  might  have  elected  to  carry  a  new  niche  network  that  would  have  expanded  the  types  of 
 programming  available  to  its  subscribers.  We  find,  however,  that  by  constraining  News  Corp.  s  ability  to  threaten  to  foreclose  programming  and  thereby  raise  prices,  and  by  requiring  Applicants  to  submit  bids  to 
 the  arbitrator  for  RSN  and  broadcast  station  programming  on  an  unbundled  basis,  the  conditions  we  impose  herein  will  protect  against  the  potential  harms  to  program  diversity  posed  by  this  transaction. 


 3.  Viewpoint  Diversity 
 262.  Another  of  the  Commissions  goals  in  the  area  of  media  policy  is  protection  of  viewpoint  diversity.  Accordingly,  the  Commission  has  restricted  ownership  of  media  outlets  in  certain  ways.  The 


 Commissions  rationale  has  been  that  ownership  diversity  leads  to  viewpoint  diversity,  a  rationale  that  has 
 720  Cablevision  Comments  at  23-  24. 
 721  Cablevision  Comments  at  14-  15;  see  also  NRTC  Petition  at  13. 
 722  Cablevision  Comments  at  14-  15. 
 723  Cablevision  Comments  at  24. 
 724  Cablevision  Comments  at  28-  29;  ACA  Comments  at  3,  7,  16;  NRTC  Petition  at  14;  JCC  Comments  at  54. 
 725  Applicants  contend  that  one  of  the  public  interest  benefits  of  the  transaction  will  be  DirecTVs  carriage  of  more 
 programming  targeted  at  culturally,  ethnically,  and  linguistically  diverse  audiences.  Application  at  42.  Applicants  contentions  relating  to  this  benefit  are  discussed  at  Section  VIII.  B.  8. 
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 been  sustained  in  court.  726  Our  rules  do  not,  however,  prohibit  cross  ownership  of  DBS  and  broadcast  outlets,  nor  have  they  ever  prohibited  such  ownership  structures. 
 263.  Positions  of  the  Parties.  CDD  and  others  contend  that  the  transaction  will  result  in  a  loss  of  both  local  and  national  perspectives.  727  They  assert  that  if  the  transaction  is  approved,  News  Corp.  will 
 have  the  incentive  and  ability  to  competitively  disadvantage  unaffiliated  content  providers  and  to  launch  new  programming  networks  on  its  own  distribution  system,  allowing  it  to  dominate  what  programming  is 
 available  to  consumers.  728  CFA  contends  that  the  transaction  will  result  in  a  degree  of  concentration  and  lack  of  diversity  of  media  voices  that  is  in  direct  contravention  of  the  public  interest.  729 


 264.  NRTC  is  concerned  that  the  transaction  may  adversely  affect  viewpoint  diversity  by  eliminating  a  voice  in  all  markets  where  DirecTV  offers  DBS  service  and  Fox  provides  over-  the-  air 
 broadcast  service.  730  NRTC  states  that  this  potential  for  harm  to  viewpoint  diversity  is  greater  in  smaller  markets,  which  have  fewer  distinct  voices.  731  NRTC  asserts  that  the  Commission  cannot  evaluate  the 
 effects  of  the  proposed  transaction  on  viewpoint  diversity  without  first  determining  how  many  homes  have  access  to  cable,  because  without  this  information,  it  cannot  determine  how  many  media  outlets  will 
 be  available  post-  transaction  in  various  markets.  732 
 265.  NAB  contends  that,  absent  conditions,  the  proposed  transaction  will  harm  local  television  broadcast  stations,  endangering  the  stations  ability  to  advance  the  core  public  interest  goals  of  diversity 


 and  localism.  733  NAB  asserts  that  the  post-  transaction  News  Corp.  will  have  the  incentive  and  ability  to  use  a  national  network  feed  to  distribute  the  programming  it  currently  offers  via  local  television  broadcast 
 stations.  734  According  to  NAB,  the  ability  to  bypass  television  broadcast  station  affiliates  would  give  post-  transaction  News  Corp.  enhanced  bargaining  power  in  its  relationships  with  its  affiliates.  735  NAB 
 contends  that  the  transaction  also  gives  DirecTV  the  incentive  and  ability  to  discriminate  against  local  television  broadcast  stations  not  affiliated  with  the  Fox  Network,  which  may  take  the  form  of  refusal  to 
 carry  unaffiliated  stations,  discriminatory  channel  positioning,  or  technological  discrimination.  736  NAB 


 726  See,  e.  g.,  F.  C.  C.  v.  N.  C.  C.  B.,  436  U.  S.  775  (1978). 
 727  CDD  Petition  at  2.  CFA  Reply  Comments  at  4-  5;  NRTC  Petition  at  9-  15. 
 728  CDD  Petition  at  3;  CFA  Reply  Comments  at  4-  5. 
 729  CFA  Reply  Comments  at  1. 
 730  NRTC  Petition  at  10-  11.  According  to  NRTC,  the  Commission  determined  that  DBS  should  be  considered  a 
 voice  for  purposes  of  analyzing  viewpoint  diversity  in  the  EchoStar-  DirecTV  HDO.  Id.  (citing  EchoStar-  DirecTV  HDO,  18  FCC  Rcd  at  20583-  85    49-  52). 


 731  NRTC  Petition  at  11. 
 732  NRTC  Petition  at  13. 
 733  NAB  Ex  Parte  at  2;  NAB  Comments  at  11,  21-  24. 
 734  NAB  Comments  at  15-  19. 
 735  NAB  Comments  at  19;  see  also  NRTC  Petition  at  16. 
 736  NAB  Comments  at  20-  21. 
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 also  is  concerned  that  the  sharing  of  information  between  Fox  Network  and  DirecTV  on  the  terms  of  retransmission  consent  and  affiliation  agreements  could  give  both  entities  negotiating  leverage  over  local 
 broadcasters  with  respect  to  such  agreements.  737  NAB  urges  us  to  condition  the  Application  on  a  prohibition  on  bypass  of  local  Fox  affiliates,  a  prohibition  on  discrimination  by  DirecTV  against 
 unaffiliated  local  television  stations,  and  a  ban  on  information  exchange  between  News  Corp.  and  DirecTV  concerning  affiliation  agreements  and  retransmission  consent  agreements.  738  NAB  also  asserts 
 that  the  Applicants  should  be  required  to  expand  local-  into-  local  service  into  all  markets  by  2006  in  order  to  ensure  that  the  proposed  transaction  does  not  slow  the  rollout  of  local-  into-  local  service.  739 


 266.  APTS/  PBS  urge  us  to  impose  conditions  on  approval  of  the  transaction  to  promote  diversity,  including  forbidding  DirecTV  from  segregating  local  broadcast  stations  on  wing  satellites,  740 
 and  requiring  DirecTV  to  carry  the  free,  over-  the-  air  non-  duplicative  digital  signals  of  public  television  stations  where  local  television  stations  are  being  carried  pursuant  to  SHVIA.  741  Maranatha  also  urges  us 
 to  condition  grant  of  the  Application  on  a  requirement  that  DirecTV  continue  to  offer  local  broadcast  television  signals  on  a  single  satellite  dish  on  grounds  that  the  transaction  may  result  in  DirecTV  using  a 
 second  dish  to  favor  News  Corp.  O&  Os  and  discriminate  against  other  broadcasters.  742 
 267.  Applicants  assert  that  News  Corp.  would  have  no  incentive  to  engage  in  an  affiliate  bypass  strategy,  and  that  such  a  strategy,  even  if  practical,  would  be  counter  to  News  Corp.  s  own 


 interests.  743  Applicants  assert  that  NRTC  is  seeking  a  DBS  cross-  ownership  ban  and  that  NRTCs  arguments  are  without  merit.  744  In  support  of  this,  Applicants  note  that  the  Commission  has  considered 
 and  rejected  cable-  DBS  cross  ownership  restrictions,  although  such  cross  ownership  presents  more  obvious  competitive  issues  than  does  broadcast-  DBS  cross  ownership.  745  They  further  assert  that 
 prohibiting  broadcast-  DBS  cross  ownership  would  be  contrary  to  recent  trends  in  media  ownership  regulation  and  the  vacation/  repeal  of  the  cable-  broadcast  cross-  ownership  rule.  746  In  light  of  these 
 actions,  as  well  as  DBS  smaller  share  of  the  MVPD  market,  Applicants  contend  that  there  is  no  basis  for 
 737  NAB  Comments  at  26-  27. 
 738  NAB  Comments  at  25-  27. 
 739  NAB  Comments  at  27. 
 740  APTS/  PBS  Comments  at  6. 
 741  APTS/  PBS  Comments  at  9-  10. 
 742  Maranatha  Comments  at  1-  2;  Reply  at  4. 
 743  Applicants  Reply  at  62-  64. 
 744  Applicants  Reply  at  65-  66. 
 745  Applicants  Reply  at  65  (citing  Policies  and  Rules  for  the  Direct  Broadcast  Satellite  Service,  17  FCC  Rcd 
 11331,  11394-  95  (2002)). 
 746  Applicants  Reply  at  65-  66  (citing  Fox  Television  Stations,  Inc.  v.  FCC,  280  F.  3d  1027  (D.  C.  Cir.  2002)  (  Fox 
 Television),  rehearing  granted,  293  F.  3d  537  (D.  C.  Cir.  2002)  (vacating  cable-  broadcast  cross-  ownership  rule);  1998  Biennial  Regulatory  Review  Review  of  the  Commissions  Broadcast  Ownership  Rules  and  Other  Rules 


 Adopted  Pursuant  to  Section  202  of  the  Telecommunications  Act  of  1996,  18  FCC  Rcd  3002  (2003)  (repealing  cable-  broadcast  cross-  ownership  rule)). 
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 limiting  broadcast-  DBS  cross  ownership.  747  Applicants  state  that  the  transaction  will  have  no  effect  on  viewpoint  diversity  in  small  markets  because  Fox  does  not  own  any  stations  in  such  markets,  so  there  will 
 be  no  change  in  the  number  of  voices  in  these  markets.  748  They  further  state  that  in  large  markets  where  Fox  does  own  broadcast  stations,  a  wealth  of  other  media  outlets  will  ensure  viewpoint  diversity,  so  the 
 transaction  will  have  little  or  no  effect.  749 
 268.  Discussion.  We  do  not  agree  with  NABs  assessment  of  the  likelihood  that  post-transaction  News  Corp.  will  harm  local  stations  by  engaging  in  an  affiliate  bypass  strategy  and  therefore 


 adversely  affect  localism  and  diversity.  As  we  explain  elsewhere  in  this  Order,  we  find  that  the  transaction  only  creates  a  de  minimis  increase  in  the  likelihood  that  News  Corp.  will  engage  in  a  bypass 
 strategy  and  we  conclude  that  therefore,  there  is  no  need  to  impose  safeguards  against  such  a  strategy.  750  With  respect  to  NABs  claim  that  the  transaction  will  give  DirecTV  the  incentive  and  ability  to 
 discriminate  against  unaffiliated  broadcasters,  we  explain  above  that  this  is  an  unlikely  result  of  the  proposed  transaction.  Because  we  find  that  the  transaction  will  not  enhance  DirecTVs  incentive  or 
 ability  to  discriminate  against  unaffiliated  broadcasters,  751  we  conclude  that  the  combination  does  not  pose  a  risk  of  harm  to  localism  or  diversity  on  that  basis.  As  we  explain  elsewhere  in  this  Order,  the 
 mandatory  carriage  provisions  of  the  SHVIA  and  our  rules  implementing  the  statute  will  ensure  that  broadcasters  will  have  access  to  the  DirecTV  platform  in  all  markets  where  DirecTV  offers  local-  into-local 
 service.  Finally,  we  disagree  with  NAB  that  information  sharing  between  DirecTV  and  Fox  will  adversely  affect  broadcasters  negotiating  agreements  with  either  entity,  and  we  will  not  impose  a 
 condition  limiting  the  Applicants  communications  concerning  such  agreements.  As  we  explain  in  our  discussion  of  limitations  on  information  sharing  in  section  VI.  C.  4,  supra,  we  find  that  the  confidentiality 
 provisions  of  the  retransmission  consent  and  program  carriage  agreements  make  such  information  sharing  unlikely.  In  addition,  NAB  also  has  not  specified  what  harms  could  result  from  such  information  sharing 
 even  if  it  could  be  accomplished. 
 269.  We  do  not  agree  with  NRTC  that  News  Corp.  s  ownership  of  local  television  broadcast  stations  and  an  MVPD  outlet  in  certain  markets  will  harm  viewpoint  diversity.  NRTC  has  not 


 demonstrated  how  common  ownership  of  DirecTV  and  local  broadcast  television  stations  would  result  in  a  loss  of  diversity  of  viewpoint  that  would  be  harmful  to  the  public  interest,  particularly  given  the 
 prevalence  of  the  multiple  sources  of  news  and  informational  programming  from  broadcast,  MVPD  and  print  sources,  and  the  fact  that  DBS  is  not  currently  a  source  of  local  news  or  other  local  content. 


 270.  We  also  disagree  with  commenters  who  contend  that  the  transaction  will  reduce  viewpoint  diversity  by  giving  News  Corp.  the  incentive  and  ability  to  discriminate  against  unaffiliated 
 program  producers  (i.  e.,  those  who  sell  programs  to  networks).  We  find  that  our  program  carriage  rules, 
 747  Applicants  Reply  at  65-  66. 


 748  Applicants  Reply  at  66. 
 749  Applicants  Reply  at  65-  66. 
 750  Indeed,  it  is  not  clear  that  a  bypass  strategy,  if  successful,  would  not  actually  promote  viewpoint  diversity 
 because,  while  Fox  programming  would  remain  available  in  the  market  on  DirecTV,  the  television  broadcast  stations  formerly  affiliated  with  Fox  would  remain  in  existence,  and  the  licensees  of  these  stations  would  remain 


 obligated  to  offer  programming  relevant  to  the  needs  and  interests  of  their  communities  presumably  adding  a  voice  to  the  market.  See  Section  VI.  C.  3,  supra. 


 751  See  id. 
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 combined  with  Applicants  proposed  commitment  not  to  discriminate  against  unaffiliated  programmers,  are  sufficient  to  protect  against  any  potential  harms.  752 
 271.  In  contrast,  we  agree  with  Commenters  who  contend  that  the  transaction  can  enhance  News  Corp.  s  incentive  and  ability  to  persuade  competitors  to  carry  its  affiliated  programming. 
 Specifically,  as  we  held  above,  the  transaction  may  enhance  News  Corp.  s  incentive  and  ability  to  extract  higher  compensation  from  competing  MVPDs  in  exchange  for  carriage  of  its  most  popular 
 programming  RSN  and  broadcast  programming.  Such  compensation  may  include  monetary  compensation,  but  also  carriage  of  News  Corp.  affiliated  networks.  To  obtain  RSN  or  broadcast 
 programming  from  News  Corp.,  an  MVPD  may  accede  to  News  Corp.  s  demands  to  carry  its  affiliated  cable  networks,  or  to  pay  supracompetitive  rates  for  News  Corp.  programming.  Absent  these  demands 
 and  higher  costs,  the  MVPD  might  have  elected  to  carry  an  independent  rival  network  that  would  have  expanded  the  sources  of  programming  available  to  its  subscribers.  However,  we  find  that  this  potential 
 harm  is  remedied  by  the  conditions  we  have  imposed  with  respect  to  competing  MVPD  access  to  such  programming.  753 


 272.  We  decline  to  adopt  APTS/  PBSs  proposal  that  we  require  DirecTV  to  carry  the  digital  signals  of  public  television  stations.  The  public  television  station  digital  signal  carriage  condition  does 
 not  address  a  potential  harm  specific  to  the  proposed  transaction.  Given  that  this  proposal  does  not  relate  to  a  transaction-  specific  issue,  it  is  not  appropriately  considered  in  this  proceeding.  The  Commission  will 
 not  consider  industry-  wide  concerns  or  establish  rules  or  policies  of  general  applicability  in  this  license  transfer  proceeding.  754  The  record  contains  no  evidence  that  the  transaction  will  give  News  Corp.  an 
 increased  incentive  or  ability  to  discriminate  against  public  television  stations,  or  any  other  evidence  of  a  potential  harm  which  would  warrant  the  imposition  of  requirements  different  from  those  to  which  other 
 MVPDs  are  subject  with  regard  to  digital  carriage  of  public  television  stations. 
 273.  With  regard  to  APTS/  PBSs  proposed  condition  to  restrict  DirecTV  from  segregating  local  broadcast  stations  to  wing  satellites,  we  recognize  that  the  proposed  transaction  may  give  DirecTV 


 greater  incentive  to  favor  News  Corp.  s  Fox  broadcast  network  programming  and  therefore  to  move  other  broadcasters  onto  other  satellites.  There  is  not  a  majority  to  decide  whether  this  increased  incentive 
 results  in  a  merger-  specific  harm.  Nor  is  there  a  majority  willing  to  resolve  APTS/  PBS's  request  that  the  Commission  clarify  its  requirements  under  SHVIA  and  specifically,  that,  in  providing  local-  into-  local 
 service  pursuant  to  SHVIA,  DirecTV  could  not  place  some  local  broadcast  stations  on  wing  satellites.  The  rationale  for  their  decisions  is  contained  in  each  of  the  Commissioners'  separate  statements. 


 B.  Effect  on  Network-  Affiliate  Relationships  (  Bypass  Issue) 
 274.  Positions  of  the  Parties.  NAB  contends  that  as  a  result  of  the  proposed  transaction,  News  Corp.  will  have  a  strong  incentive  and  ability  to  bypass  local  Fox  broadcasting  affiliates  and  instead 


 752  See  Section  VI.  C.  4  and  IX,  supra. 
 753  See  id. 
 754  Questions  concerning  the  carriage  of  the  digital  signals  of  television  broadcast  stations  are  the  subject  of  a 
 pending  rulemaking  proceeding.  Carriage  of  the  Transmissions  of  Digital  Television  Broadcast  Stations,  13  FCC  Rcd  15092  (1998). 
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 distribute  Fox  programming  via  a  national  feed.  755  NAB  asserts  that  News  Corp.  would  realize  immediate  benefits  from  such  an  action,  including  immediate  cost  savings  from  reduced  or  eliminated  retransmission 
 consent  payments  and  increased  advertising  revenue  756  that  would  otherwise  have  gone  to  local  Fox  affiliates.  757  NAB  argues  that  this  change  will  give  DirecTV  substantially  increased  leverage  over  local 
 affiliates,  endangering  their  ability  to  serve  local  interests  or  provide  diversity.  758  According  to  NAB,  a  bypass  strategy  would  result  in  short-  term  harm  to  Fox  affiliates  in  the  form  of  lost  retransmission  consent 
 fees,  but  also  long-  term  harm  to  the  network-  affiliate  relationship  so  critical  to  the  American  system  of  broadcasting.  759  To  remedy  this  potential  harm,  NAB  urges  us  to  prohibit  DirecTV  from  transmitting  a 
 Fox  network  feed  in  any  market  currently  served  by  a  non-  Fox-  owned  local  affiliate.  760  Applicants  respond  that  a  bypass  strategy  scenario  makes  no  sense.  Applicants  contend  they  gain  more  from  a 
 broadcast  affiliation  system  which  reaches  nearly  100%  of  the  country  than  could  be  gained  through  a  bypass  model  based  on  DirecTVs  13%  market  share.  761 


 275.  Discussion.  Contrary  to  the  contentions  of  NAB,  we  find  that  the  transaction  creates  only  a  de  minimis  increase  in  the  Applicants  ability  and  incentive  to  engage  in  a  bypass  strategy. 
 Accordingly,  we  will  not  condition  our  approval  of  the  transaction  on  the  bypass  prohibition  proposed  by  NAB.  NABs  bypass  argument  is  a  variation  of  the  argument  made  by  MVPDs  that  the  transaction  will 
 give  News  Corp.  the  incentive  and  ability  to  engage  in  permanent  foreclosure  of  access  to  its  broadcast  signals  by  competing  MVPDs,  which  we  analyzed  above.  The  only  difference  between  the  bypass  and 
 permanent  foreclosure  strategies  is  that  a  bypass  strategy  would  impose  even  greater  revenue  losses  on  News  Corp.  If  it  bypasses  local  affiliates,  News  Corp.  will  lose  not  only  the  advertising  revenue 
 associated  with  those  rival  MVPD  subscribers  that  do  not  receive  over-  the-  air  broadcast  signals  but  also  the  advertising  revenue  associated  with  all  non-  DirecTV  subscribers.  We  do  not  find  that  it  would  be 
 profitable  for  News  Corp.  to  engage  in  permanent  foreclosure  in  the  previous  situation,  and  we  find  it  even  less  likely  in  NABs  proposed  scenario.  [REDACTED].  762  [REDACTED].  In  any  event,  because 
 the  proposed  transaction  would  have  a  de  minimis  impact  on  News  Corp.  s  incentive  to  engage  in  this  behavior,  we  do  not  view  it  as  a  likely  outcome  of  the  transaction. 


 C.  Collusion  with  Cable  MSOs 


 755  NAB  Comments  at  11,  15;  NAB  Comments,  Exhibit  1,  Decl.  of  J.  Gregory  Sidak  (Jun.  16,  2003)  (  Sidak 
 Decl.). 
 756  NAB  Comments  at  11;  Sidak  Decl.  at    14-  19. 


 757  NAB  Comments,  Sidak  Decl.  at    20-  23. 
 758  NAB  Comments  at  21-  24.  Sidak  argues  that  the  harm  to  Fox  affiliates  will  have  a  ripple  effect  across  the 
 broadcast  landscape  to  other  affiliates.  For  example,  Fox  affiliates  might  be  then  willing  to  accept  inferior  terms  from  other  broadcast  network,  diminishing  the  bargaining  power  of  other  local  broadcasters  in  the  same  local  area 


 in  their  affiliation  negotiations  with  their  respective  networks.  NAB  Comments  at  22,  Sidak  Decl.    28. 
 759  NAB  Comments  at  21-  24. 


 760  NAB  Comments  at  25-  28. 
 761  Applicants  Reply  at  63. 
 762  [REDACTED]. 
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 276.  Positions  of  the  Parties.  EchoStar  argues  that  the  proposed  transaction  will  give  News  Corp.  new  incentives  to  coordinate  with  other  vertically  integrated  distributors  (the  large  cable  MSOs)  to 
 the  detriment  of  independent  distributors  and  consumers.  763  EchoStar  argues  that  the  proposed  transaction  will  give  News  Corp.  an  opportunity  to  engage  in  collusive  practices,  as  it  will  make 
 complementary  the  interests  of  News  Corp.  and  the  large  vertically  integrated  cable  operators  and  will  allow  mutually  beneficial,  but  anticompetitive,  deals  between  those  companies.  Further,  it  claims  that 
 such  collusion  presents  only  upside  and  no  cost  if  News  Corp.  and  a  vertically  integrated  cable  MSO  enter  into  an  agreement  to  raise  the  prices  of  the  News  Corp.  programming  carried  by  the  cable  MSOs 
 systems  and  the  cable  MSOs  programming  carried  by  DirecTV,  because  the  higher  programming  fees  would  cancel  each  other  out  for  the  two  companies,  while  independent  distributors  and  consumers  would 
 bear  the  burden  of  this  anticompetitive  behavior  in  the  form  of  higher  programming  prices  and  subscription  fees.  764  EchoStar  argues  that  the  criteria  used  by  the  DOJ  and  the  FTC  to  determine  the 
 likelihood  of  lessened  competition  through  coordinated  interaction  as  a  consequence  of  a  horizontal  merger  are  present  in  this  transaction.  765  EchoStar  argues  that  the  relevant  MVPD  markets  are 
 concentrated  and  exhibit  comparatively  substantial  barriers  to  entry.  766  In  the  average  geographic  region,  EchoStar  contends,  the  incumbent  cable  provider  holds  roughly  80%  of  the  MVPD  market,  and  DirecTV 
 holds  about  10%,  resulting  in  a  highly  concentrated  market  (an  HHI  over  6000).  Accordingly,  EchoStar  claims  that  collusion  or  coordination  is  likely. 


 277.  EchoStar  also  argues  that  News  Corp.  has  a  history  of  collusive  behavior  with  the  largest  cable  MSOs.  767  Furthermore,  EchoStar  avers  that  the  involvement  of  the  same  firms  and  same  individuals 
 substantially  raises  the  risk  of  repeated  collusion.  EchoStar  asserts  that  in  1996  and  1997,  News  Corp.  s  announcement  that  it  intended  to  enter  the  DBS  business  in  the  United  States  (by  means  of  a  merger  with 
 EchoStar)  caused  Primestar  Partners  (a  cable  MSO-  DBS  joint  venture)  to  react  and  convince  News  Corp.  to  pull  out  of  the  deal  with  EchoStar  in  favor  of  a  transaction  with  Primestar.  According  to  EchoStar,  the 
 DOJ  found  that  when  it  was  clear  that  News  Corp.  would  not  compete  with  cable  operators,  the  cable  companies  dropped  their  resistance  to  carrying  certain  Fox  programming  networks.  As  a  result,  DOJ 
 brought  suit  against  Primestar  and  News  Corp.  alleging  collusion.  The  Primestar/  News  Corp.  transaction  was  abandoned  in  the  face  of  this  litigation.  768 


 278.  EchoStar  further  argues  that  easy  detection  of  deviation  from  the  collusive  arrangement  makes  it  easier  to  maintain  collusive  arrangements.  According  to  EchoStar,  there  would  be  no  need  to 
 detect  deviations  because  of  the  win-  win  arrangement  whereby  the  two  vertically  integrated  distributors  would  agree  to  raise  all  of  their  programming  prices.  In  addition,  EchoStar  argues  that  the  higher  prices 
 could  be  embedded  in  superficially  legitimate  program  carriage  agreements,  so  there  would  be  no  need  to  police  deviations  from  some  illicit  backroom  deal.  769  Regarding  punishment  for  deviation,  EchoStar 


 763  EchoStar  Petition  at  32. 
 764  Id.  at  33. 
 765  Id.  at  33  citing  DOJ/  FTC  Guidelines    2.1. 
 766  EchoStar  Petition  at  33-  34. 
 767  Id.  at  34-  36. 
 768  EchoStar  Petition  at  32  (citing  See  United  States  v.  Primestar,  Inc.  et  al.,  No.  1:  98CV01193  (D.  D.  C.)  (filed 
 May  12,  1998)  (  DOJ  Primestar  Complaint),  available  at  http://  www.  usdoj.  gov/  atr/  cases/  f1700/  1757.  pdf). 
 769  EchoStar  Petition  at  36. 
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 states  that  deviations  from  collusion  can  be  policed  automatically  by  the  kind  of  mutually  beneficial  agreement  that  the  proposed  deal  would  make  possible  --  for  example,  if  one  partner  wanted  to  charge  an 
 independent  distributor  lower  programming  rates,  it  might  no  longer  be  able  to  finance  the  higher  programming  rates  charged  by  the  other  partner.  In  addition,  EchoStar  argues  that  our  program  access 
 rules  would  work  perversely  to  ensure  uniformly  high  programming  prices  and  effectively  police  deviations.  770 


 279.  EchoStar  argues  that  even  without  explicit  collusion,  News  Corp.  and  cable  MSOs  have  incentives  to  avoid  hard  competition  with  one  another,  especially  on  price,  because,  as  carriers  of  each 
 others  programming,  the  interested  companies  would  share  in  each  others  revenues,  and  so  would  avoid  vigorous  price  competition  at  the  MVPD  level,  which  would  effectively  decrease  the  size  of  the  total 
 programming  revenue  pie.  771  In  addition,  EchoStar  believes  that  News  Corp./  Hughes  faces  tough  decisions  about  how  aggressively  to  court  cable  consumers,  and  a  revenue  stream  from  cable 
 programming  alters  that  calculus  by  allowing  News  Corp.  to  earn  some  revenue  from  consumers  remaining  with  cable.  Thus,  according  to  EchoStar,  given  the  significant  costs  of  luring  customers  from 
 cable  to  satellite,  it  is  predictable  that  programming  revenue  would  make  rational  less  aggressive  competitive  efforts  than  would  otherwise  be  expected.  EchoStar  also  notes  that  because  News  Corp. 
 owns  the  Fox  broadcast  network,  and  to  the  extent  that  high  cable  and  DBS  prices  push  consumers  to  avoid  pay  programming  altogether,  News  Corp.  could  recover  some  of  its  losses  by  increasing  Fox 
 network  advertising  revenues.  772 
 280.  EchoStar  provides  three  scenarios  to  illustrate  how  collusion  between  News  Corp.  and  the  cable  industry  would  undermine  competition,  raise  rates  and  reduce  choice  for  consumers.  Under  the 


 Programming  Quid  Pro  Quo  scenario,  in  exchange  for  carrying  a  cable  companys  affiliated  programming  network  at  an  inflated  rate,  News  Corp.  could  demand  that  the  cable  company  reciprocate 
 with  an  inflated  rate  for  a  Fox  network,  to  the  detriment  of  non-  vertically  integrated  MVPDs  and  consumers.  Due  to  the  non-  discrimination  program  access  provisions,  both  programmers  would  charge 
 the  same  inflated  rate  to  all  MVPDs.  Non-  integrated  MVPDs  would  have  no  programming  assets  with  which  to  barter  in  this  fashion,  and  therefore  would  simply  have  to  absorb  the  higher  rate  without  any 
 corresponding  benefit.  773  In  its  second  scenario,  EchoStar  argues  that  rival  MVPDs  and  consumers  may  be  harmed  by  News  Corp.  and  the  cable  industry  extending  their  mutually  beneficial  arrangements  to  the 
 set-  top  box  market,  with  agreements  to  share  standards,  software,  patents,  and  other  assets  to  the  exclusion  of  other  MVPDs.  774  Finally,  EchoStar  argues  that  News  Corp.  will  likely  partner  with  cable 
 operators  for  an  alternative  means  of  providing  broadband  services,  rather  than  using  DSL  or  facilities-based  satellite  broadband.  775 


 281.  Applicants  deny  the  existence  and  the  likelihood  of  a  cable  cabal  made  up  of  vertically 
 770  Id.  at  36. 
 771  Id.  at  36. 
 772  Id.  at  37. 
 773  Id.  at  38. 
 774  Id.  at  38-  39. 
 775  Id.  at  39. 
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 integrated  cable  operators  that  would  coordinate  their  behavior  with  DirecTV  to  compete  less  vigorously  with  one  another.  The  Applicants  argue  that  antitrust  theory  supports  the  notion  that  collusion  of  this  sort 
 is  very  difficult  to  establish  and  maintain,  citing,  for  example,  problems  with  the  prevention  of  individual  cartel  members  cheating  on  the  cartel.  776  Applicants  argue  that  EchoStar  fails  to  establish  how  this 
 problem  will  be  avoided  and  disputes  EchoStars  claim  that  News  Corp.  s  incentives  in  the  proposed  transaction  are  the  same  as  those  in  the  PrimeStar  transaction.  The  Applicants  contend  that  the  PrimeStar 
 transaction  involved  News  Corp.  investing  in  an  organization  made  up  of  cable  operators,  while  the  present  transaction  involves  News  Corp.  investing  in  a  DBS  operator  that  has  dedicated  itself  to 
 competing  with  cable  operators.  777  Finally,  Applicants  argue  that  consistent  comments  from  cable  operators  opposing  this  proposed  transaction  and  reflecting  a  recognition  of  a  strengthened  DBS 
 competitor  further  negate  EchoStars  theory  that  the  transaction  will  result  in  collusion  and  the  reduction  of  price  competition  between  cable  and  DBS  operators.  778 


 282.  Discussion.  We  find  EchoStars  theories  of  cable  collusion  unpersuasive.  The  record  in  this  proceeding  indicates  that  the  MVPD  market  has  been  and  will  remain  fiercely  competitive  between 
 cable  operators  and  DBS  providers.  EchoStars  claims  regarding  potential  collusion  between  cable  MSOs  and  the  Applicants  post-  transaction  are  highly  speculative. 


 283.  Moreover,  several  fundamental  bases  supporting  EchoStars  collusion  theory  are  flawed.  At  the  outset,  EchoStar's  arguments  concerning  market  concentration  are  misdirected.  EchoStar 
 estimates  market  concentration  in  the  MVPD  market  based  on  the  national  market  shares  of  the  three  major  MVPD  platforms  (i.  e.,  the  cable  MSOs  and  the  two  incumbent  full-  CONUS  DBS  providers)  and 
 assumes  that  vertically  integrated  cable  MSOs  will  collude  with  the  Applicants  to  raise  programming  prices.  In  assessing  the  likelihood  of  collusion  on  the  prices  of  video  programming,  however,  it  is  the 
 characteristics  of  the  programming  market  and  not  the  MVPD  market  that  are  relevant.  Even  a  cursory  examination  of  the  programming  market  reveals,  however,  that  there  are  numerous  owners  of  cable 
 networks  and  that  many  of  the  programming  owners  are  not  vertically  integrated  with  MVPDs.  779  This  suggests  that,  if  the  News  Corp.  and  vertically  integrated  cable  MSOs  collude  to  raise  the  price  of  their 
 programming,  this  attempted  price  increase  alone  would  prove  unprofitable. 
 284.  We  also  disagree  with  several  of  EchoStars  factual  claims  regarding  the  history  of  collusion  in  the  MVPD  industry.  EchoStar  does  not  accurately  describe  the  first  PrimeStar  lawsuit 
 brought  by  DOJ  and  45  states.  780  News  Corp.,  in  fact,  was  not  involved  with  that  lawsuit,  which  involved  integrated  cable  programmers  that  created  a  joint  venture,  PrimeStar,  used  to  coordinate  their  activities. 
 In  the  transaction  before  us,  there  is  no  joint  venture  to  tie  together  the  disparate  economic  interests  of  the  parties.  We  note  that  in  the  case  of  PrimeStar,  the  firms  had  to  form  a  company  to  create  a  mechanism  by 
 which  they  could  commit  to  sell  to  only  one  DBS  competitor,  which  was  jointly  owned.  That  mechanism  included  a  joint  economic  interest  and  an  enforcement  provision  to  avoid  the  cheating  problem.  The 


 776  Applicants  Reply  at  73-  74. 
 777  Id.  at  74. 
 778  Id. 
 779  2002  Video  Competition  Report,  17  FCC  Rcd  at  26980-  88,  Tables  C-  1  and  C-  2. 
 780  See  United  States  v.  Primestar  Partners,  L.  P.,  1994  WL  196800  (S.  D.  N.  Y.);  State  of  New  York  v.  Primestar 
 Partners,  L.  P.,  1993  WL  720677  (S.  D.  N.  Y.). 
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 proposed  transaction  creates  no  such  mechanism. 
 285.  With  respect  to  the  second  PrimeStar  lawsuit,  DOJ  filed  suit  to  block  a  horizontal  merger  in  which  MVPDs  in  the  same  relevant  market  as  DBS,  and  also  owning  a  DBS  firm,  PrimeStar,  agreed  to 


 acquire  a  potential  DBS  competitor  that  owned  rights  to  DBS  orbital  slots  and  in  which  News  Corp.  owned  an  interest.  781  As  in  the  previous  case,  the  solution  to  reduce  competition  was  to  tie  together  the 
 economic  interests  of  the  firms  through  a  formal  joint  venture.  While  neither  case  involved  explicit  collusion,  both  did  involve  creating  formal  organizations  to  force  the  firms  to  cooperate  to  achieve 
 specific  goals.  The  proposed  transaction  would  create  no  such  formal  linkage  of  DBS  and  cable  operators.  The  record  is  devoid  of  evidence  of  a  history  in  the  MVPD  industry  of  the  sort  of  loosely 
 organized  collusive  relationships  involving  News  Corp.  and  vertically  integrated  cable  operators  alleged  by  EchoStar. 


 286.  EchoStar  is  also  incorrect  in  its  claim  that  there  is  no  need  to  detect  and  punish  deviation  from  a  collusive  arrangement.  There  are  strong  incentives  in  the  video  programming  industry  to  deviate 
 from  collusive  agreements  because  the  marginal  cost  of  acquiring  additional  viewers  is  near  zero.  Because  the  costs  of  programming  production  remain  the  same  regardless  of  the  number  of  viewers,  each 
 additional  viewer  and  resulting  dollar  is  almost  entirely  profit  for  a  video  programmer,  thereby  creating  strong  incentives  to  lower  price  and  increase  the  reach  of  the  programming,  particularly  in  the  face  of  a 
 competitor  that  has  naively  agreed  to  maintain  high  prices.  In  addition  to  the  existence  of  strong  incentives  to  cheat  on  collusive  agreements,  it  is  difficult  to  detect  cheating  in  collusive  agreements  in 
 video  programming  markets.  [REDACTED].  782  [REDACTED]. 
 287.  EchoStars  contention  that  following  the  transaction,  the  Applicants  will  have  a  reduced  incentive  to  compete  with  vertically  integrated  cable  operators  on  the  basis  of  the  revenue  stream  they 


 obtain  from  providing  video  programming  runs  counter  to  the  allegations  of  many  commenters  and  our  analysis  of  the  potential  vertical  harms  likely  to  result  from  this  transaction.  As  we  discussed  above  with 
 respect  to  temporary  foreclosure  of  RSN  and  local  broadcast  television  signals,  the  profit  margin  DirecTV  earns  from  each  additional  subscriber  is  substantial.  This  creates  a  strong  incentive  to  drive  customers  to 
 DirecTV,  even  when  it  requires  sacrificing  profits  from  video  programming  sales.  In  the  case  of  regional  sports  networks  and  retransmission  consent  we  found  that  in  addition  to  having  an  incentive,  the 
 Applicants  possess  the  ability  to  behave  in  this  manner. 
 288.  We  examine  EchoStars  three  collusion  scenarios  in  turn.  EchoStars  proposed  scenario  regarding  collusion  between  vertically  integrated  cable  operators  and  the  Applicants  in  the  video 


 programming  market  is  at  best  a  highly  unlikely  scenario  unsupported  by  any  facts  in  the  record.  EchoStars  hypothesis  that  it  and  other  non-  vertically  integrated  MVPDs  would  have  no  programming 
 assets  with  which  to  barter  in  this  fashion,  and  therefore  would  simply  have  to  absorb  the  higher  rate  without  any  corresponding  benefit,  ascribes  a  degree  of  market  power  and  lack  of  substitutes  to  a  broad 
 range  of  video  programming  products  which  in  general  does  not  exits.  783  EchoStars  scenario  of  collusion  in  the  set-  top  box  market  is  curious.  EchoStar  claims  that  integrated  MVPDs  will  share  standards, 
 software,  patents,  and  other  assets,  784  yet  provides  no  evidence  that  any  other  integrated  MVPD  owns 
 781  See  DOJ  Primestar  Complaint. 


 782  [REDACTED]. 
 783  2002  Video  Competition  Report,  17  FCC  Rcd  at  26980-  88,  Tables  C-  1  and  C-  2. 
 784  EchoStar  Petition  at  38. 
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 any  assets  used  in  set-  top  boxes.  785  Finally,  EchoStars  allegation  that  following  the  transaction  DirecTV  will  abandon  all  forms  of  broadband  access  in  favor  of  partnerships  with  providers  of  cable  broadband 
 services  is  wholly  unsupported  and  defies  the  evidence  contained  in  several  recently  announced  partnerships  with  major  providers  of  DSL  broadband  access.  786 


 D.  Exclusive  Arrangements  with  Unaffiliated  Programmers 
 289.  Positions  of  the  Parties.  Some  commenters  are  concerned  that  the  combination  will  allow  DirecTV  to  secure  exclusive  contracts  for  desirable  programming  that  is  not  affiliated  with  News 


 Corp.  to  the  detriment  of  competing  MVPDs  and  consumers.  787  These  commenters  seek  to  end  DirecTVs  ability  to  enter  into  exclusive  contracts  with  unaffiliated  programmers,  such  as  the  NFL.  788 
 EchoStar  contends  that  News  Corp.  s  ability  to  offer  worldwide  distribution  to  content  providers  will  result  in  exclusive  arrangements  for  DirecTV.  789  According  to  EchoStar,  News  Corp.  s  dominant  presence 
 in  Great  Britain,  Asia,  and  Latin  America  will  enable  it  to  out-  bid  EchoStar  for  sporting  events  such  as  World  Cup  Soccer  or  the  Olympic  Games.  790  EchoStar  contends  that  News  Corp.  s  ability  to  outbid 
 EchoStar  would  not  be  the  result  from  normal,  market-  based  competition,  but  from  the  leveraging  of  market  power  abroad  to  create  market  power  in  the  United  States.  791 


 290.  ACA  is  concerned  that  News  Corp.  will  have  strong  incentives  to  expand  DirecTVs  practice  of  entering  into  exclusive  arrangements  for  popular  content,  such  DirecTVs  current  NFL  Sunday 
 Ticket  offering.  ACA  contends  that  such  arrangements  could  be  used  to  target  small  cable  competitors  that  are  ill-  equipped  to  secure  such  deals.  792  Accordingly,  ACA  urges  the  Commission  to  require 
 Applicants  to  make  such  all  News  Corp.  and  DirecTV  programming,  including  unaffiliated  programming  carried  by  DirecTV,  available  to  small  cable  operators  under  reasonable  prices,  terms,  and 
 conditions.  793  CFA  agrees,  asserting  that  the  Applicants  program  access  commitments  must  be  expanded 
 785  The  leading  set-  top  box  manufacturers  are  Motorola,  Scientific-  Atlanta,  Pioneer,  Sony,  and  Pace.  Kagan 
 Media  Trends  2003  at  110-  113. 
 786  Vince  Vittore,  Bellsouth  Samples  Satellite  with  DirecTV  Resale  Setup,  TELEPHONY,  Sept.  8,  2003  (reporting  on 
 BellSouths  agreement  to  resell  DirecTV  service);  Kris  Hudson,  Qwest  Might  Tell  You  How  to  Pay  Less,  DENVER  POST,  Nov.  3,  2003  (reporting  that  Qwest  now  offers  DirecTV's  satellite  service  in  Arizona  and  Washington 


 state.);  SATELLITE  WEEK,  November  24,  2003  (reporting  that  a  DirecTV  spokesman  confirmed  reports  that  a  strategic  marketing  agreement  with  Verizon  was  in  the  works  but  declined  to  give  details.  Reports  have  said 
 Verizon  would  offer  DirecTV  service  as  part  of  its  product  mix.  Both  companies  expect  to  bring  their  products  to  market  after  the  first  of  the  year.  We'll  announce  details  at  that  time,    the  DirecTV  spokesman  said.). 


 787  EchoStar  Petition  at  25-  26,  64;  ACA  Comments  at  21-  23;  ACA  Reply  Comments  at  7-  8,  CFA  Reply, 
 Attachment  at  3. 
 788  EchoStar  Petition  at  64. 


 789  EchoStar  Petition  at  25-  26. 
 790  EchoStar  Petition  at  25-  26. 
 791  EchoStar  Petition  at  25-  26. 
 792  ACA  Comments  at  21-  23;  ACA  Reply  Comments  at  7-  8. 
 793  ACA  Comments  at  23. 
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 to  prevent  News  Corp.  from  entering  into  exclusive  arrangements  with  third  parties.  794 
 291.  Discussion.  The  record  does  not  demonstrate  that  the  transaction  is  likely  to  increase  DirecTVs  incentive  and  ability  to  secure  exclusive  programming  contracts  with  unaffiliated 


 programmers,  as  its  share  of  the  MVPD  market  is  not  being  increased  by  the  transaction.  In  several  prior  mergers  involving  MVPDs,  the  Commission  has  rejected  arguments  that  the  post-  merger  entity  should  be 
 required  to  abide  by  an  exclusivity  restriction  with  respect  to  programming  of  unaffiliated  programming  vendors.  795  Similarly,  the  Commission  considered  whether  to  expand  the  exclusivity  provision  to  non-vertically 
 integrated  programmers  in  the  last  program  access  proceeding  and  found  that  such  an  expansion  would  directly  contradict  Congress  intent  in  limiting  the  program  access  provisions  to  a  specific  group  of 
 market  participants.  796  Commenters  have  failed  to  offer  a  cogent  rationale  for  doing  so  in  the  context  of  this  proceeding.  797 


 292.  We  disagree  with  the  contention  that  the  transaction  will  increase  News  Corp.  s  ability  to  outbid  EchoStar  by  leveraging  its  market  power  abroad  in  the  worldwide  distribution  of  sporting  events  to 
 create  market  power  in  the  United  States.  In  making  this  claim,  EchoStar  apparently  confuses  News  Corp.  s  ownership  of  satellite  assets  covering  broad  geographic  areas  with  the  ability  to  deliver  large 
 audiences  worldwide.  In  fact,  only  eight  percent  of  television  households  throughout  the  world  subscribe  to  DBS  services.  798  The  vast  majority  of  the  worlds  television  households  (61%)  receive  video 
 programming  only  via  free  over-  the-  air  television.  799  It  is  the  ability  to  deliver  large  audiences  via  free  over-  the-  air  television,  not  large  geographic  areas,  that  increases  a  distributors  ability  to  secure  rights  to 
 sports  programming  of  worldwide  interest,  and  News  Corp.  is  competing  for  such  rights  with  many  international  broadcasters  who  can  deliver  larger  audiences.  800  In  addition,  the  sporting  events  EchoStar 
 is  concerned  about  are  governed  by  organizations  such  as  Federation  Internationale  de  Football  Association  (  FIFA)  801  or  the  International  Olympic  Committee  (  IOC),  which  seek  to  maximize 
 distribution  of  the  events,  not  restrict  supply  and  raise  prices.  IOC,  for  example,  only  grants  distribution  rights  to  broadcasters  who  can  guarantee  the  broadest  coverage  throughout  their  respective  countries  free 


 794  CFA  Reply,  Attachment  at  3. 
 795  See,  e.  g.,  Comcast-  AT&  T  Order,  17  FCC  Rcd  at  23290;  AT&  T  MediaOne  Order,  15  FCC  Rcd  at  9854-  55. 
 796  Program  AccessOrder,  17  FCC  Rcd  at  12158. 
 797  As  stated  previously,  we  have  accepted  without  change  Applicants  additional  program  access  commitments, 
 described  in  Section  VI.  C.  4.  a,  supra,  which  specify  that  DirecTV  may  continue  to  compete  for  programming  that  is  lawfully  offered  on  an  exclusive  basis  by  an  unaffiliated  program  rights  holder  (e.  g.,  NFL  Sunday  Ticket). 


 798  According  to  the  ITU,  8%  of  television  households  in  the  world  subscribe  to  satellite  delivered  programming 
 services,  while  29%  subscribe  to  programming  services  delivered  via  cable.  The  remaining  households,  over  600  million,  receive  their  programming  from  over-  the-  air  broadcasts.  See  International  Telecommunication  Union, 


 World  Telecommunication  Indicators,  Mar.  2001  at  71.  We  do  not  know  News  Corp.  s  share  of  the  worldwide  DBS  market,  but  the  entire  market  represents  only  small  percentage  of  the  worlds  television  viewers. 


 799  Id. 
 800  EchoStars  concern  that  News  Corp.  would  outbid  other  MVPDs  also  is  misplaced  the  possession  of 
 market  power  by  a  buyer  of  programming  confers  the  benefit  of  paying  lower  prices,  not  higher  prices. 
 801  FIFA  owns  the  television  and  radio  rights  to  World  Cup  soccer  matches. 
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 of  charge.  802  Therefore,  while  News  Corp.  has  the  ability  to  distribute  the  Olympics  through  its  free  over-the-  air  television  O&  Os  and  affiliates,  its  ownership  of  or  acquisition  of  satellite  distribution  platforms 
 which  are  not  free  to  the  public  is  unlikely  to  expand  or  enhance  News  Corp.  s  ability  to  secure  rights  to  the  Olympics.  To  the  extent  that  other  U.  S.  programming  distributors  are  willing  and  able  to  offer  wider, 
 free  distribution  of  these  few  events,  they  are  likely  to  remain  on  at  least  an  equal  footing  with  News  Corp.  in  the  bidding  for  distribution  rights. 


 293.  In  conclusion,  we  find  objections  concerning  exclusive  programming  arrangements  with  third  parties  unrelated  to  the  present  transaction.  There  is  no  evidence  in  the  record  to  support  a  finding 
 that  the  proposed  transaction  will  increase  the  incentive  or  ability  of  DirecTV  to  enter  into  exclusive  arrangements  with  programmers,  and  commenters  have  not  convinced  us  of  the  benefits  to  the  public  of 
 limiting  the  ability  of  unaffiliated  programmers  to  enter  into  exclusive  contracts  with  DirecTV. 
 E.  Applicants  Conduct  in  Foreign  Jurisdictions 
 294.  Positions  of  the  Parties.  Several  parties  contend  that  News  Corp.  s  alleged  anticompetitive  track  record  and  market  power  with  respect  to  its  MVPD  satellite  provider  BSkyB  in  the 


 United  Kingdom  (UK)  should  be  factored  into  the  Commissions  determination  of  the  potential  harms  of  this  proposed  transaction.  803  EchoStar  and  JCC  argue  that  News  Corp.  s  operation  of  BSkyB  offers  a 
 preview  of  what  can  be  expected  in  the  U.  S.  804  JCC  claim  that  BSkyBs  UK  track  record  underscores  the  risks  that  this  transaction  will  expand  opportunities  for  News  Corp.  to  artificially  inflate  programming 
 costs  and  impose  unfair  tying  and  bundling  requirements  for  content  it  controls  in  order  to  harm  rival  content  suppliers  and  distributors.  805  EchoStar  recommends  that  the  Commission  should  not  accept  News 
 Corp.  s  claim  that  it  lacks  market  power  in  the  United  States  programming  markets  and  accordingly  should  conduct  its  own  investigation  in  light  of  the  anticompetitive  incentives  recognized  by  the  UK 
 regulatory  authority,  the  conduct  of  News  Corp.  s  vertically  integrated  UK  subsidiary,  and  the  UK  regulatory  authoritys  finding  that  News  Corp.  is  dominant  in  UK  programming  markets.  806 


 295.  Applicants  respond  that  the  preview  should  be  encouraging  for  domestic  consumers  because  BSkyB  offers  a  fully  digital,  interactive  service  with  a  host  of  features  not  yet  available  in  the 
 United  States.  807  Moreover,  Applicants  claim  that  the  allegations  of  BSkyBs  malfeasance  in  the  UK  are 


 802  The  IOC  has  often  declined  higher  offers  for  broadcast  on  a  pay-  per-  view  basis  or  because  a  broadcaster 
 could  reach  only  a  limited  part  of  the  population,  as  this  is  against  Olympic  Broadcast  Policy.  This  fundamental  IOC  Policy,  set  forth  in  the  Olympic  Charter,  ensures  the  maximum  presentation  of  the  Olympic  Games  by 


 broadcasters  around  the  world  to  everyone  who  has  access  to  television.  Rights  are  only  sold  to  broadcasters  who  can  guarantee  the  broadest  coverage  throughout  their  respective  countries  free  of  charge.  International  Olympic 
 Committee  -  Organisation  -  Facts  And  Figures  at  http://  www.  olympic.  org/  uk/  organisation/  facts/  broadcasting/  index_  uk.  asp  (visited  Oct.  9  2003). 


 803  See  JCC  Comments  at  49-  54;  EchoStar  Petition  at  26-  30;  see  also  CDD  Petition  at  6  (calling  the  Commissions 
 attention  to  the  MVPD  market  in  Italy). 
 804  EchoStar  Petition  at  26;  JCC  Comments  at  49-  50. 


 805  JCC  Comments  at  54. 
 806  EchoStar  Petition  at  30. 
 807  Applicants  Reply  at  70. 
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 irrelevant  to  the  Commissions  review  of  the  proposed  transaction  based  on  the  Applicants  reliance  on  a  1999  Commission  decision  regarding  an  MCI-  EchoStar-  News  Corp.  license  transfer  application.  808 
 Finally,  Applicants  urge  the  Commission  to  reject  EchoStars  request  to  subject  News  Corp.  to  certain  conditions  imposed  on  BSkyB  in  1996  by  UK  regulatory  authorities  regarding  prior  approval  of  rate 
 cards,  channel  unbundling,  the  submission  of  various  accounts,  and  its  control  of  proprietary  encryption  technology.  809  Applicants  contend  that  there  is  no  support  offered  by  EchoStar  for  this  type  of 
 unprecedented  MVPD  regulation,  even  on  cable  operators  with  far  greater  market  share  than  DirecTV,  and  note  that  EchoStar  did  not  recommend  such  conditions  for  itself  in  1999  when  News  Corp.  purchased 
 a  32%  share  of  EchoStar.  810 
 296.  Discussion.  In  MCIT/  EchoStar,  the  Commission  was  unpersuaded  by  arguments  calling  for  the  imposition  of  program  access  conditions  on  EchoStar  in  its  acquisition  of  MCI  and  News  Corp. 


 satellite  licenses.  811  One  of  the  primary  bases  for  these  proposed  conditions  was  the  conduct  of  News  Corp.  s  BSkyB  satellite  service  in  the  UK  and  the  resulting  program  access  conditions  imposed  on 
 BSkyB  by  the  UK  regulatory  authority.  812  The  Commission  did  not,  however,  analyze  BSkyBs  conduct  in  the  UK  when  it  decided  not  to  impose  program  access  conditions.  Instead,  the  Commission  declined  to 
 impose  the  conditions  because  of  an  inadequate  record  to  support  a  finding  that  EchoStar  had  market  power  and  because  of  the  ability  of  MVPDs  to  use  the  Commissions  program  access  rules  for  redress  if  a 
 News  Corp.  programming  arrangement  resulted  in  price  discrimination  or  unfair  practices.  813  Thus,  the  Commission  precedent  discussed  by  Applicants  is  of  limited  assistance. 


 297.  While  the  Commission  generally  does  not  consider  harms  resulting  from  a  transaction  occurring  outside  the  United  States  in  its  public  interest  analysis  of  a  transaction  unless  the  transaction 
 directly  impacts  a  relevant  domestic  market,  nothing  in  relevant  statutory  or  case  law  would  prevent  the  Commission  from  considering  the  conduct  of  the  Applicants  in  foreign  jurisdictions  to  determine  the 
 likelihood  of  similar  future  conduct  in  the  United  States.  814  Evidence  regarding  foreign  conduct  could  provide  useful  guidance  as  to  how  Applicants  might  act  in  the  United  States  if  they  had  similar  media 
 assets  and  economic  incentives.  Based  on  our  understanding  of  the  UK  BSkyB  experience,  however,  we  do  not  believe  the  proposed  transaction  would  result  in  sufficiently  parallel  market  conditions  to  warrant 
 great  reliance  upon  BSkyBs  UK  experience. 
 298.  The  UKs  Office  of  Fair  Trading  (OFT)  conducted  two  formal  investigations  of  BSkyBs  wholesale  business  practices.  In  its  1996  decision,  OFT  examined  several  complaints  lodged  against 


 BSkyB,  including  its  wholesale  pricing  for  programming,  programming  packaging,  programming  rights, 


 808  Id.  (citing  Application  of  MCI  Telecommunications  Corporation,  16  FCC  Rcd  21608,  21621  (1999) 
 (MCIT/  EchoStar)). 
 809  Id.  at  70-  71. 


 810  Id.  at  71. 
 811  MCIT/  EchoStar,  16  FCC  Rcd  at  21621    25. 
 812  MCIT/  EchoStar,  16  FCC  Rcd  at  21620    23. 
 813  MCIT/  EchoStar,  16  FCC  Rcd  at  21621-  22    25-  27. 
 814  See,  e.  g.,  General  Electric  Capital  Corp.  and  SES  Global,  S.  A.,  16  FCC  Rcd  17575,  17594  (2001). 
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 and  conditional  access  services.  815  OFTs  investigation  determined  that  several  of  BSkyBs  business  practices  warranted  scrutiny,  which  led  to  BSkyB  agreeing  to  submit  separate  accounting  information  for 
 its  wholesale  and  retail  operations.  816  BSkyB  also  committed  to  modify  certain  of  its  programming  carriage  requirements  in  response  to  concerns  raised  by  OFT.  817  OFT  determined  that  the  undertakings  to 
 which  BSkyB  agreed  were  sufficient  to  avoid  a  formal  referral  to  the  UKs  Monopolies  and  Mergers  Commission.  818 


 299.  In  its  2002  review  of  BSkyB,  OFT  again  reviewed  numerous  aspects  of  BSkyBs  business  practices  in  response  to  various  complaints  from  BSkyBs  wholesale  customers  and  retail 
 competitors.  819  OFT  focused  on  three  main  areas:  whether  BSkyB  had  imposed  a  margin  squeeze  on  its  retail  competitors;  whether  discounts  in  BSkyBs  mixed  program  bundling  scheme  prevented  rival 
 premium  channel  providers  from  entering  the  market;  and  whether  BSkyBs  rate  card  discounts  were  anti-competitive.  820  In  framing  its  investigation,  OFT  determined  that  BSkyB  held  a  dominant  position  in  the 
 market  for  the  wholesale  supply  of  certain  premium  sports  channels  and  certain  premium  films  channels.  821  Under  UK  law,  however,  dominance  in  and  of  itself  is  not  a  violation  of  the  UK  Competition 
 Act  of  1998.  Rather,  abuse  of  a  dominant  position  must  be  shown.  OFT  determined  that  BSkyB  had  not  abused  its  dominant  position  in  either  sports  or  film  programming,  nor  in  the  manner  in  which  it  made 
 that  programming  available  to  its  competitors.  OFT  determined  that  there  was  insufficient  cause  to  find  that  BSkyB  had  exercised  a  margin  squeeze  on  its  competitors.  822  It  further  determined  BSkyBs  mixed 
 bundling  wholesale  price  strategy  was  not  an  abuse  of  its  dominant  position.  823  Finally,  OFT  determined  that  BSkyBs  rate  card  discounts  were  not  an  abuse  of  its  dominant  position  and  had  not  forestalled  entry 
 into  the  wholesale  market  for  premium  channels.  824  Thus,  in  its  most  recent  investigation  of  BSkyBs 


 815  Office  of  Fair  Trading,  The  Director  Generals  Review  of  BSkyBs  Position  in  the  Wholesale  Pay  TV  Market 
 (1996  Review),  Dec.  1996. 
 816  Id.  at  9  and  Appendix  A,  at  117. 


 817  Id.  at  10-  18,  115-  116. 
 818  Id.  at  17. 
 819  Office  of  Fair  Trading,  BSkyB  Investigation:  Alleged  Infringement  of  the  Chapter  II  Prohibition  (  2002 
 Review),  Dec.  17,  2002. 
 820  Id.  at  4. 


 821  Id.  at  14-  43;  44-  63.  With  respect  to  sports  channels,  OFT  focused  only  on  channels  showing  content  available 
 strictly  via  pay  TV,  specifically  the  UK  Football  Association  Premier  League  football  matches  and  those  films  that  had  exceeded  $50  million  in  ticket  sales  in  the  U.  S.  BSkyB  had  secured  exclusive  license  to  the  broadcast  rights 


 of  66  Premier  League  live  matches,  or  100%  of  the  market.  Under  European  Commission  precedent,  market  shares  significantly  exceeding  70%  are  by  themselves  an  indication  of  dominance.  With  respect  to  films,  BSkyB 
 has  exclusive  contracts  with  seven  major  Hollywood  studios,  which  together  supplied  more  than  70%  of  the  films  sold  in  the  European  Economic  Area.  These  rights  were  distributed  across  only  two  BSkyB  channels:  Sky 
 MovieMax  and  Sky  Premier. 
 822  Id.  at  135. 


 823  Id.  at  151. 
 824  Id.  at  165. 
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 business  practices,  which  built  upon  its  previous  investigation,  the  principle  UK  regulator  determined  that  BSkyBs  behavior  did  not  violate  UK  competition  law.  We  assume  that  OFT  continues  to  examine 
 BSkyBs  behavior  as  it  continues  to  maintain  its  position  of  dominance.  825 
 300.  There  is  no  evidence  in  the  record  indicating  that  BSkyBs  current  wholesale  provision  of  programming  is  in  violation  of  UK  competition  law,  and  although  the  company  was  found  in  an  earlier 


 investigation  to  be  engaging  in  marginally  anticompetitive  activities,  those  same  concerns  appear  to  have  dissipated  during  the  more  recent  review.  We  do  not  believe  it  would  be  fair  to  focus  on  a  set  of 
 behaviors,  which  BSkyB  agreed  to  modify  via  specific  undertakings  and  have  since  been  modified  or  superceded  by  properly  competitive  behavior  in  the  UK  pay  TV  market,  as  evidenced  by  the  lack  of  UK 
 regulatory  censure  or  referral  for  anticompetitive  remedies.  Furthermore,  although  it  is  instructive  to  examine  the  behavior  of  News  Corp.  s  various  subsidiaries,  we  find  that  each  of  those  subsidiaries 
 functions  in  essentially  a  unique  commercial  environment  and  is  subject  to  specific  national  regulatory  regimes.  To  arbitrarily  apply  a  set  of  conditions,  as  espoused  by  EchoStar,  without  taking  into 
 consideration  the  specific  conditions  and  competitive  dynamic  of  the  relevant  market,  in  this  case  the  MVPD  market  in  the  United  States,  would  be  arbitrary  and  inappropriate. 


 F.  Competitive  Harms  in  Latin  America  and  Impact  on  U.  S.  Consumers  and  Programmers 
 301.  Positions  of  the  Parties.  EchoStar  argues  that  the  Commission  should  consider  the  impact  the  proposed  transaction  will  have  on  MVPD  markets  in  Latin  America,  as  well  as  the  resulting 
 indirect  impact  on  U.  S.  consumers  and  independent  programmers.  826  EchoStar  claims  that  the  only  two  Direct-  to-  Home  satellite  providers  in  Latin  America  are  affiliates  of  Hughes  and  News  Corp.,  Galaxy 
 Latin  America  and  Sky  Latin  America,  and  cable  is  not  a  significant  competitor  to  those  two  MVPDs.  EchoStar  argues  that  the  proposed  transaction  will  result  in  a  near  monopoly  for  MVPD  services  in  Latin 
 America,  which  will  indirectly  impact  U.  S.  consumers  by  increasing  the  leverage  of  News  Corp.  as  a  monopsonist  in  Latin  America  to  extract  concessions  from  programmers  in  other  countries,  including 
 the  U.  S.  827  EchoStar  contends  that  the  Commission  has  adequate  authority  to  take  this  alleged  harm  under  consideration  based  on  the  Commissions  inquiry  in  1997  involving  Hughes  acquisition  of 
 PanAmSat.  EchoStar  claims  that  in  1997  the  Commission  dismissed  a  concern  regarding  Sky  Latin  America,  who  had  leased  capacity  from  PanAmSat,  because,  in  part,  the  programming  ventures  at  issue 
 would  remain  under  separate  ownership.  Under  the  proposed  transaction,  EchoStar  argues  that  the  separate  ownership  relied  upon  in  1997  would  be  eliminated.  828  Tectelcom  Tecnica  em 
 Telecommunicacoes  Ltda.  (  Tecsat),  a  Brazilian  company,  also  raises  concerns  about  the  competitive 


 825  We  note  that  it  was  announced  on  December  17,  2003  that  the  European  Union  and  UK  Soccer  League  had 
 agreed  to  air  some  games  on  free  television,  thus  forcing  BSkyB  to  sell  some  rights  of  live  soccer  games  to  free-to-  air  broadcasters.  Reportedly,  the  settlement  means  that  BSkyB  must  lift  its  control  over  exclusive  rights  to  as 


 many  as  eight  live  games  a  season  as  early  as  next  year.  See  WALL  ST.  J.,  December  17,  2003  at  D4;  Associated  Press,  EU  Settles  Antritrust  Dispute  Over  Soccer  Game  Broadcasts,  Dec.  16,  2003. 


 826  EchoStar  Petition  at  58. 
 827  EchoStar  Petition  at  58. 
 828  EchoStar  Petition  at  58  (citing  Hughes  Communications,  Inc.,  12  FCC  Rcd  7534,  7542  (1997).) 
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 impact  of  the  transaction  in  Brazil  where  News  Corp.  provides  satellite  subscription  service  in  competition  with  DirecTV.  829 
 302.  Applicants  urge  the  Commission  to  reject  EchoStars  call  to  consider  the  impact  of  the  proposed  transaction  on  Latin  America.  First,  Applicants  note  the  Commissions  prior  holding  that  the 
 effects  of  a  transaction  arising  outside  of  the  United  States  are  not  relevant  to  the  Commissions  public  interest  analysis  of  the  transaction.  830  Second,  Applicants  argue  that  the  1997  merger  of  Hughes  and 
 PanAmSat  is  not  analogous  to  the  proposed  transaction.  831  The  Applicants  contend  that  the  impact  on  the  Latin  America  video  market  was  raised  by  a  party,  Comsat,  not  the  Commission,  and  was  more  relevant 
 to  that  transaction  because  the  relevant  market  for  that  transaction  was  the  international  telecommunications  service  market.  The  Applicants  conclude  that  the  proposed  transaction  does  not 
 address  that  market  and  raises  no  similar  issues.  832 
 303.  Discussion.  We  find  that  commenters  have  failed  to  provide  persuasive  evidence  as  to  why  the  Latin  America  MVPD  market  is  relevant  to  our  consideration  of  the  harms  resulting  from  the 


 proposed  transaction.  As  the  Applicants  indicate,  the  Commission  generally  does  not  consider  harms  resulting  from  a  transaction  occurring  outside  the  United  States  in  our  public  interest  analysis  of  a 
 transaction,  unless  the  transaction  directly  impacts  a  relevant  United  States  market.  833  We  also  agree  with  the  Applicants  that  the  1997  Hughes-  PanAmSat  transaction  targeted  a  different  market  from  the  markets 
 at  issue  here. 
 G.  DirecTV  and  Fox  Network  Service  in  Alaska  and  Hawaii 
 304.  Positions  of  Parties.  Microcom  argues  that  the  Commission  should  deny  the  proposed  transaction  unless  the  Commission  conditions  its  approval  with  measures  designed  to  address  the  alleged 


 failure  of  Hughes  and  News  Corp.  to  provide  satellite  service  to  Alaska  consumers.  834  Microcom  contends  that  DirecTV  has  failed  to  provide  Alaska  and  Hawaii  with  comparable  service  to  that  provided 
 in  other  states  even  though  existing  regulation  requires  them  to  do  so.  835  Microcom  also  contends  that  News  Corp.  is  the  only  major  broadcaster  that  has  effectively  denied  many  Alaska  commercial 
 establishments  Fox  network  programming  by  refusing  to  allow  DBS  satellite  reception  of  distant  Fox  affiliate  stations  by  commercial  establishments  outside  the  grade  B  contour  of  the  local  Fox  affiliates  and 


 829  Letter  from  John  F.  McNaughton  and  Peter  D.  P.  Vint,  Marcondes  Advogados  Associados,  Counsel  to  Tecsat, 
 to  Marlene  H.  Dortch,  Secretary,  FCC,  Dec.  12,  2003. 
 830  Applicants  Reply  at  75  (citing  General  Electric  Capital  Corp.  and  SES  Global,  S.  A.,  16  FCC  Rcd  17575, 
 17594  (2001)  (  We  need  not  analyze  the  impact  of  the  proposed  transaction  on  competition  in  the  provision  of  satellite  services  to  foreign  countries  that  do  not  involve  service  to  or  from  the  United  States.). 


 831  Id.  at  75-  76. 
 832  Id. 
 833  See  supra  note  105. 
 834  Microcom  Comments  at  1. 
 835  Id.  at  1-  2. 
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 requiring  that  these  establishments  install  a  C-  band  satellite  system  to  receive  the  programming  from  a  satellite  many  cannot  see,  i.  e.,  that  is  below  or  close  to  the  horizon.  836 
 305.  The  Applicants  argue  that  Microcoms  allegations  are  meritless  and  do  not  represent  cognizable  reasons  for  the  Commission  to  deny  approval  of  the  proposed  transaction  or  to  condition  it  as 
 Microcom  suggests.  The  Applicants  claim  that  DirecTV  has  always  provided  Alaska  with  the  same  programming  it  offers  to  continental  U.  S.  subscribers  although  with  larger  satellite  dish  antennas  for 
 reception.  837  The  Applicants  also  dispute  the  allegation  that  commercial  establishments  in  Alaska  are  denied  DBS  reception  of  distant  affiliate  signals,  noting  that  copyright  law  permits  satellite  carriers  to 
 retransmit  distant  signals  for  private  home  viewing  only  and  not  into  commercial  establishments.  838 
 306.  Discussion.  The  Commissions  rules  require  that  DBS  licensees  provide  service  where  technically  feasible  to  Alaska  and  Hawaii,  and  DBS  licensees  must  offer  packages  of  services  in  Alaska 


 and  Hawaii  that  are  reasonably  comparable  to  what  they  offer  in  the  contiguous  48  states.  839  The  issues  raised  by  Microcom  regarding  DBS  service  to  Alaska  and  Hawaii  are  not  specific  to  this  transaction  and 
 are  more  appropriately  being  addressed  in  another  Commission  proceeding  focused  specifically  on  those  issues.  840  Further,  issues  raised  regarding  News  Corp.  s  provision  of  distant  affiliate  signals  involve 
 interpretation  of  copyright  law  and  are  not  properly  addressed  in  this  proceeding.  841 


 836  Id.  at  2.  To  address  these  alleged  public  interest  harms  facing  Alaska  consumers,  Microcom  requests  that  the 
 Commission  impose  the  following  conditions  on  its  approval  of  the  proposed  transaction:  (1)  within  one  year  of  completion  of  the  transfer,  DirecTV  must  start  offering  small  dish  service  to  Alaska  and  Hawaii  that  provides  all 


 programming  from  its  core  slot  at  101  (small  dish  coverage  is  defined  as  anything  under  on  meter  in  the  Anchorage,  Fairbanks,  and  Juneau  DMAs  and  the  Honolulu  DMA);  (2)  PanAmSat  will  make  a  good  faith  effort  to 
 ensure  that  all  future  satellites  provide  coverage  equal  to  the  CONUS  over  all  of  Alaska  where  the  elevation  angle  is  5  or  greater  consistent  with  international  agreements  (including  the  Aleutian  islands);  (3)  failing  condition  1 
 above,  News  Corp.  should  be  required  to  subsidize  DirecTV  equipment  prices  and  installations  to  keep  the  overall  cost  for  consumer  services  consistent  with  the  CONUS  pricing  or  their  nearest  competitor  in  Alaska  (alternatively, 
 they  should  make  available  for  sale  on  Dish  Networks  Alaska  and  Hawaii  110  spot  beams  their  exclusive  sports  programming  packages);  (4)  immediately  make  all  DirecTV  and  Fox  Networks  promotions  applicable  to  all  50 
 states  without  exception;  and  (5)  Fox  Networks  immediately  allow  reception  of  distant  Fox  affiliates  in  commercial  establishment  outside  the  grade  B  contour  of  a  local  Fox  affiliate,  and  Fox  Networks  should 
 immediately  make  available  other  Fox  sports  and  entertainment  programming  from  DBS  satellites  to  commercial  operators  when  there  is  no  other  alternative  to  receive  that  programming.  Id.  at  2-  3. 


 837  Applicants  Reply  at  71-  72  n.  200. 
 838  Id. 
 839  See  47  C.  F.  R.  25.148(  c);  Policies  and  Rules  for  Direct  Broadcast  Satellite  Service,  17  FCC  Rcd  11331,  11364 
   65  (2002). 
 840  See  Petitions  Regarding  DirecTVs  DBS  Service  to  the  States  of  Alaska  and  Hawaii,  MB  03-  82,  Public  Notice, 
 DA  03-  862  (rel.  Mar.  25,  2003). 
 841  See  17  U.  S.  C.    119. 
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 H.  Exclusion  of  Non-  Network  Affiliated  Broadcasters  from  the  Benefits  of  Local-  Into-Local  Carriage 
 307.  Positions  of  the  Parties.  Johnson  Broadcasting  contends  that  DirecTV  has  denied  it  local-  into-  local  carriage,  as  a  licensee  of  TV  station  KLDT,  Lake  Dallas,  Texas,  in  violation  of  the 
 SHVIA.  842  Since  SHVIAs  implementation,  Johnson  Broadcasting  claims  DirecTV  has  attempted  to  undermine  the  Acts  policy  objectives  by  excluding  non-  network  affiliated  broadcasters  from  the  benefits 
 of  local-  into-  local  carriage.  843  Johnson  Broadcasting  states  that  DirecTV  alleged  that  Johnson  Broadcasting  filed  its  request  for  carriage  one  day  late  and  therefore  denied  Johnsons  request.  Johnson 
 Broadcasting  argues  that  the  deadline  fell  on  a  Sunday  and  therefore  filed  the  next  day,  Monday,  in  accordance  with  Commission  filing  rules.  As  a  result,  Johnson  Broadcasting  filed  a  complaint  with  the 
 Commissions  Cable  Services  Bureau,  which  was  subsequently  denied.  844  Johnson  Broadcasting  now  has  an  Application  for  Review  regarding  its  complaint  pending  before  the  Commission.  Johnson 
 Broadcasting  contends  that  it  will  not  be  eligible  for  carriage  on  DirecTVs  system  until  January  1,  2006,  as  a  result  of  DirecTVs  denial  of  local-  into-  local  carriage.  845  Johnson  Broadcasting  seeks  the  imposition 
 of  several  conditions.  First,  before  acting  on  the  proposed  transaction,  the  Commission  should  first  ensure  that  all  broadcasters  be  guaranteed  the  right  to  mandatory  carriage  in  any  market  where  DirecTV 
 provides  local-  into-  local  service.  Second,  the  Commission  should  grant  Johnson  Broadcastings  Application  for  Review  and  order  DirecTV  to  commence  carriage  of  KLDT  in  the  Dallas  DMA.  846 


 308.  The  Applicants  argue  that  this  license  transfer  proceeding  is  not  the  proper  forum  to  litigate  Johnson  Broadcastings  complaint  and  note  that  the  Media  Bureau  and  a  federal  district  court  have 
 already  dismissed  this  same  mandatory  carriage  complaint  against  DirecTV.  847 
 309.  Discussion.  We  agree  that  this  license  transfer  review  proceeding  is  not  the  proper  forum  to  address  Johnsons  Broadcastings  complaint,  and  Johnson  Broadcasting  has  provided  no  evidence 


 indicating  that  DirecTV  is  in  violation  of  SHVIA  on  an  industry-  wide  basis.  Accordingly,  we  reject  the  conditions  proposed  by  Johnson  Broadcasting. 


 I.  Lack  of  Final  Media  Ownership  Rules 
 310.  Positions  of  the  Parties.  The  National  Hispanic  Media  Coalition  (NHMC)  argues  that  the  Commission  should  deny  the  proposed  transaction  application  and  find  that  a  substantial  and  material 


 question  exists  as  to  whether  the  proposed  transaction  is  in  the  public  interest  because  the  Commission 


 842  Johnson  Broadcasting  Comments  at  1. 
 843  Id.  at  2. 
 844  See  Johnson  Broadcasting,  Inc.  v.  DirecTV,  Inc.,  16  FCC  Rcd  21329  (2001);  Johnson  Broadcasting  of  Dallas, 
 Inc.  v.  DirecTV,  Inc.,  17  FCC  Rcd  886  (2002) 
 845  Johnson  Broadcasting  Comments  at  2. 


 846  Id.  at  3. 
 847  Applicants  Reply  at  73  (citing  Johnson  Broadcasting,  Inc.  v.  DirecTV,  Inc.,  16  FCC  Rcd  21329  (2001); 
 Johnson  Broadcasting  of  Dallas,  Inc.  v.  DirecTV,  Inc.,  17  FCC  Rcd  886  (2002);  Johnson  Broadcasting,  Inc.  and  Johnson  Broadcasting  of  Dallas,  Inc.  v.  DirecTV,  Inc.,  Civil  Action  No.  H-  02-  0136,  Opinion  (S.  D.  Tex.,  Houston 


 Div.)  (Jul.  15,  2002)  (granting  motion  to  dismiss  of  DirecTV). 
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 has  not  provided  the  public  with  final  media  ownership  rules  allegedly  needed  to  determine  the  relevant  factual  showings  and/  or  legal  standards  for  reviewing  the  proposed  transaction.  Initially,  NHMC  argued 
 that  the  Commission  had  not  released  final  rules  at  the  time  initial  comments  were  due  on  the  proposed  transaction  application.  848  Subsequently,  NHMC  contended  in  its  reply  comments  that  the  Commission 
 had  only  recently  released  an  erratum  to  the  Media  Ownership  Order  and  had  not  published  final  rules  in  the  Federal  Register  as  of  the  deadline  for  reply  comments.  849  As  a  result,  NHMC  argues  that,  if  the 
 Commission  were  to  issue  a  decision  on  the  proposed  transaction  during  this  time  of  legal  limbo  where  the  Commission  lacks  final  multiple  ownership  and  cross-  interest  rules,  the  decision  would  violate  the  fair 
 notice  and  opportunity  for  comment  provisions  of  the  Administrative  Procedure  Act.  850  If  the  Commission  does  not  deny  the  proposed  transaction  application  for  these  reasons,  NHMC  argues  that  the 
 Commission  must  release  a  new  public  notice  allowing  interested  parties  to  file  comment  on  the  proposed  transaction  within  30  days  upon  release  of  final  media  ownership  rules.  851 


 311.  The  Applicants  argue  that  NHMCs  request  is  groundless  and  largely  moot  and  therefore  should  be  rejected.  852  The  Applicants  note  that  the  new  media  ownership  rules  were  released  with  the 
 Commissions  Media  Ownership  Order  on  July  2,  2003.  853  Further,  the  Applicants  contend  that  the  new  media  ownership  rules  are  irrelevant  to  their  license  transfer  Application  because  the  Application  does  not 
 involve  any  broadcast  licenses  of  the  type  that  are  at  issue  in  the  Media  Ownership  Order  and  thereby  subject  to  the  broadcast  license  transfer  processing  freeze.  854 


 312.  Discussion.  Since  the  filing  of  NHMCs  reply  comments,  the  Commission  has  released  its  final  media  ownership  rules.  855  Those  rules,  however,  were  stayed  by  the  United  States  Court  of 
 Appeals  for  the  Third  Circuit.  856  As  a  result,  the  previous  media  ownership  rules  have  been  reinstated.  Thus,  all  commenters  have  had,  and  continue  to  have,  available  what  are  now  the  current  media 
 ownership  rules  at  the  deadlines  for  initial  and  reply  comments  on  the  proposed  transaction.  Moreover,  because  this  is  a  permit-  but-  disclose  proceeding,  interested  parties,  including  NHMC,  were  able  to  file 
 comments  addressing  the  impact  of  the  current  media  ownership  rules  on  the  proposed  transaction  in  the  form  of  oral  or  written  ex  parte  presentations  throughout  this  up  proceeding.  Finally,  these  rules  are  part 
 of  the  Commissions  continuing  biennial  review  process  and  therefore  will  be  subject  to  change  at  least  every  two  years.  For  these  reasons,  we  do  not  find  NHMCs  arguments  compelling  and  will  not  release  a 
 subsequent  public  notice  seeking  comment  as  requested. 


 848  NHMC  Petition  at  2-  4. 
 849  NHMC  Reply  at  2. 
 850  NHMC  Petition  at  5. 
 851  NHMC  Reply  at  3. 
 852  Applicants  Aug.  28  Ex  Parte. 
 853  See  2002  Biennial  ReviewOrder. 
 854  Applicants  Aug.  28  Ex  Parte. 
 855  See  2002  Biennial  Review  Order. 
 856  See  Prometheus  Radio  Project  v.  FCC,  No.  03-  3388,  rel.  Sept.  3,  2003  (3rd  Cir.  2003). 
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 J.  Protection  of  General  Motors  Class  GMH  Stockholders 
 313.  Positions  of  the  Parties.  Wyser-  Pratte  Management  Co.  (Wyser-  Pratte)  petitioned  the  Commission  to  deny  the  proposed  transaction  or  condition  its  approval  of  the  proposed  transaction  on  the 


 equitable  treatment  of  holders  of  General  Motors  Class  H  Common  Stock  (  GMH  stock)  857  so  that  GMH  stockholders  are  treated  as  favorably  in  the  proposed  transaction  as  GM,  the  holder  of  all  of  Hughes 
 common  stock.  858  Wyser-  Pratte  alleges  that  the  proposed  transaction  discriminates  against  GMH  stockholders  through  a  $275  million  distribution  from  Hughes  to  GM  as  a  part  of  the  transaction  for 
 claimed  value  enhancements  for  GMH  stockholders  arising  from  the  conversion  of  GMH  from  a  tracking  stock  to  an  asset-  based  stock.  859  Wyser-  Pratte  claims  the  proposed  transaction  will  result  in 
 proceeds  of  sale  of  Hughes  to  News  Corp.  at  $15  per  share  to  GM  and  $14  per  share  to  GMH  shareholders.  860  Wyser-  Pratte  argues  based  on  Commission  precedent  that  the  Commission  is  obligated  to 
 protect  the  rights  of  GMH  shareholders  in  the  Commissions  review  of  the  proposed  transaction.  861 
 314.  Discussion.  We  disagree  with  Wyser-  Pratte  that  its  claim  falls  within  the  scope  of  our  review  of  the  proposed  transaction.  While  it  is  true  that  the  Commission  does  consider  the  rights  and 


 interests  of  the  relevant  companies  (shareholders)  and  consumers  (ratepayers)  in  its  review  of  license  transfers,  we  agree  with  the  Applicants  that  it  is  beyond  the  scope  of  our  review  to  consider  allegations  of 
 unfair  premiums  paid  to  specific  classes  of  shareholders  in  a  given  transaction.  862  The  Commission  is  not  the  proper  forum  for  what  is,  in  effect,  a  shareholder  derivative  suit  seeking  a  share  of  an  alleged  control 
 premium.  Such  claims  are  properly  within  the  jurisdiction  of  the  appropriate  state  court.  863  Accordingly,  we  dismiss  Wyser-  Prattes  petition  as  beyond  the  scope  of  our  review  of  the  proposed  transaction. 


 VIII.  ANALYSIS  OF  POTENTIAL  PUBLIC  INTEREST  BENEFITS 
 315.  We  now  consider  the  efficiencies  and  other  public  interest  benefits  that  Applicants  claim  will  result  from  the  proposed  merger.  As  discussed  below,  we  find  that  the  proposed  transaction  is  likely 


 to  yield  several  cognizable  benefits.  First,  we  find  that  News  Corp.,  in  its  management  of  BSkyB,  Sky  Italia,  and  its  other  DTH  operations,  has  demonstrated  a  willingness  to  take  risks  in  introducing  and 
 promoting  new  and  innovative  services.  Based  on  this  management  history,  and  in  particular,  its  record  of  innovation  in  many  media  businesses,  including  its  introduction  of  interactive  services  in  the  United 
 Kingdom,  we  find  credible  the  Applicants'  claim  that  News  Corp.  will  accelerate  the  introduction  of  new  services,  and,  in  particular,  interactive  television  services  by  DirecTV,  and  that  the  public  will  benefit 
 from  the  entry  of  this  innovative  and  aggressive  competitor  in  the  MVPD  market.  Second,  we  conclude 


 857  GMH  is  a  tracking  stock  of  GM  designed  to  provide  its  holders  with  financial  returns  based  on  the  financial 
 performance  of  Hughes,  a  wholly  owned  subsidiary  of  GM.  See  Wyser-  Pratte  Management  Co.  Petition  at  7. 
 858  Wyser-  Pratte  Management  Co.  Petition  at  1. 


 859  Wyser-  Pratte  Management  Co.  Petition  at  11. 
 860  Wyser-  Pratte  Management  Co.  Petition  at  2-  3 
 861  Id.  at  15  (citing  Illinois  Public  Telecommunications  Assoc.  v.  FCC,  117  F.  3d  555,  569  (D.  C.  Cir.  1997)). 
 862  See  Applicants  Aug.  28  Ex  Parte. 
 863  See  id.  (citing  A.  L.  Z.  Broadcasting,  Inc.,  15  FCC  Rcd  23200,  23201  (2000);  Loral  Corp.,  12  FCC  Rcd  24325, 
 24322  (1997)). 
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 that  consumers  will  benefit,  and  our  goals  of  promoting  localism  and  competition  will  be  furthered,  to  the  extent  that  the  transaction  increases  the  number  of  DMAs  that  receive  local-  into-  local  broadcast  television 
 channels.  To  ensure  that  this  benefit  is  realized,  we  impose  a  condition  described  below  that  is  intended  to  ensure  that  News  Corp.  will  adhere  to  its  promised  build-  out  plans.  Third,  we  find  that  the  proposed 
 transaction  is  likely  to  yield  some  benefits  in  the  form  of  increased  economies  of  scale  and  scope,  improved  customer  satisfaction  and  reduced  churn,  and  a  reduction  in  double  marginalization.  We  assign 
 little  weight  to  those  claimed  benefits,  however,  for  the  reasons  given  below.  Finally,  as  discussed  below,  we  do  not  recognize  as  potential  public  interest  benefits  the  Applicants'  claims  that  the  proposed 
 transaction  will  result  in  increased  operating  efficiencies,  improved  access  to  capital,  or  expanded  program  and  employment  diversity  and  equal  opportunity. 


 A.  Analytical  Framework 
 316.  The  Commission  has  recognized  that  "[  e]  fficiencies  generated  through  a  merger  can  mitigate  competitive  harms  if  such  efficiencies  enhance  the  merged  firms  ability  and  incentive  to 


 compete  and  therefore  result  in  lower  prices,  improved  quality,  enhanced  service  or  new  products.  864  Under  Commission  precedent,  however,  the  Applicants  bear  the  burden  of  demonstrating  that  the 
 potential  public  interest  benefits  of  the  proposed  transfer  outweigh  the  potential  public  interest  harms.  865 
 317.  There  are  several  criteria  the  Commission  applies  in  deciding  whether  a  claimed  benefit  should  be  considered  and  weighed  against  potential  harms.  First,  the  claimed  benefit  must  be 


 transaction-  or  merger-  specific.  This  means  that  the  claimed  benefit  "must  be  likely  to  be  accomplished  as  a  result  of  the  merger  but  unlikely  to  be  realized  by  other  means  that  entail  fewer  anticompetitive 
 effects."  866  Second,  the  claimed  benefit  must  be  verifiable.  Because  much  of  the  information  relating  to  the  potential  benefits  of  a  merger  is  in  the  sole  possession  of  the  Applicants,  they  are  required  to  provide 
 sufficient  evidence  supporting  each  benefit  claim  so  that  the  Commission  can  verify  the  likelihood  and  magnitude  of  the  claimed  benefit.  867  In  addition,  as  the  Commission  has  noted,  "the  magnitude  of  benefits 


 864  See  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630,    188;  Applications  of  NYNEX  Corporation,  Transferor, 
 and  Bell  Atlantic  Corporation,  Transferee,  for  Consent  to  Transfer  Control,  12  FCC  Rcd  19885,  20063    158  (1997)  (  Bell  Atlantic-  NYNEX  Order);  see  also  DOJ/  FTC  Guidelines    4 


 865  See,  e.  g.,  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630,    188;  see  also  Bell  Atlantic-  NYNEX  Order,  12  FCC 
 Rcd  at  20063    157;  Applications  of  Ameritech  Corp.,  Transferor,  and  SBC  Communications  Inc.,  Transferee,  For  Consent  to  Transfer  of  Control,  14  FCC  Rcd  14712,  14825    256  (1999)  (  SBC-  Ameritech  Order). 


 866  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630    189;  see  also  Bell  Atlantic-  NYNEX  Order,  12  FCC  Rcd  at 
 20063    158  (  Pro-  competitive  efficiencies  include  only  those  efficiencies  that  are  merger-  specific,  i.  e.,  that  would  not  be  achievable  but  for  the  proposed  merger.  Efficiencies  that  can  be  achieved  through  means  less  harmful  to 


 competition  than  the  proposed  merger  .  .  .  cannot  be  considered  to  be  true  pro-  competitive  benefits  of  the  merger.);  SBC-  Ameritech  Order,  14  FCC  Rcd  at  14825    255(  Public  interest  benefits  also  include  any  cost 
 saving  efficiencies  arising  from  the  merger  if  such  efficiencies  are  achievable  only  as  a  result  of  the  merger.  .  .  );  Comcast-  AT&  T  Order,  17  FCC  Rcd  23246,  23313    173  (Commission  considers  whether  benefits  are  "merger-specific"). 
 Cf.  DOJ/  FTC  Guidelines    4  . 
 867  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630    190;  see  also,  Bell  Atlantic-  NYNEX  Order,  12  FCC  Rcd  at 
 20063    157  (  These  pro-  competitive  benefits  include  any  efficiencies  arising  from  the  transaction  if  such  efficiencies  .  .  .  are  sufficiently  likely  and  verifiable.  .  .  );  Comcast-  AT&  T  Order,  17  FCC  Rcd  at  23313    173 


 (Commission  considers  whether  benefits  are  "verifiable");  SBC-  Ameritech  Order,  14  FCC  Rcd  at  14825    255;  DOJ/  FTC  Guidelines    4  ([  T]  he  merging  firms  must  substantiate  efficiency  claims  so  that  the  Agency  can  verify 
 (continued.) 
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 must  be  calculated  net  of  the  cost  of  achieving  them."  868  Furthermore,  speculative  benefits  that  cannot  be  verified  will  be  discounted  or  dismissed.  Thus,  as  the  Commission  explained  in  the  EchoStar    DirecTV 
 HDO,  "benefits  that  are  to  occur  only  in  the  distant  future  may  be  discounted  or  dismissed  because,  among  other  things,  predictions  about  the  more  distant  future  are  inherently  more  speculative  than 
 predictions  about  events  that  are  expected  to  occur  closer  to  the  present."  869  Third,  the  Commission  has  stated  that  it  "will  more  likely  find  marginal  cost  reductions  to  be  cognizable  than  reductions  in  fixed 
 cost."  870  The  Commission  has  justified  this  criterion  on  the  ground  that,  in  general,  reductions  in  marginal  cost  are  more  likely  to  result  in  lower  prices  for  consumers.  871 


 318.  Finally,  the  Commission  applies  a  "sliding  scale  approach"  to  evaluating  benefit  claims.  Under  this  sliding  scale  approach,  where  potential  harms  appear  "'both  substantial  and  likely,  the 
 Applicants  demonstration  of  claimed  benefits  also  must  reveal  a  higher  degree  of  magnitude  and  likelihood  than  we  would  otherwise  demand.  '  872 


 B.  Claimed  Benefits 
 319.  The  Applicants  claim  that  the  proposed  transaction  will  generate  several  types  of  public  interest  benefits.  These  claimed  benefits  are  summarized  and  evaluated  below. 


 1.  Improvements  in  DirecTVs  Service  Offerings  Resulting  from  News  Corps  Innovative  Management 
 320.  Claiming  that  News  Corp.  has  a  proven  track  record  of  innovation  in  programming  and  DTH  services,  Applicants  contend  that  News  Corp.  will  apply  its  innovative  management  style  to 
 Hughes.  873  In  particular,  the  Applicants  claim  that  News  Corp.  will  enhance  DirecTV's  interactive  television  offerings  and  increase  the  penetration  of  integrated  set-  top  boxes  among  DirecTV  customers. 


 (Continued  from  previous  page)  by  reasonable  means  the  likelihood  and  magnitude  of  each  asserted  efficiency,  how  and  when  each  would  be 
 achieved  (and  any  costs  of  doing  so),  [and]  how  each  would  enhance  the  merged  firms  ability  to  compete.  .  .  "). 
 868  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630    190. 


 869  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630    190. 
 870  See  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630    191;  see  also  DOJ/  FTC  Guidelines    4. 
 871  See  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630    191;  see  also  DOJ/  FTC  Guidelines    4. 
 872  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20630    192  (citing  SBC-  Ameritech  Order,  14  FCC  Rcd  at  14825). 
 Cf.  DOJ/  FTC  Guidelines    4  (  The  greater  the  potential  adverse  competitive  effect  of  a  merger  .  .  .  the  greater  must  be  cognizable  efficiencies  in  order  for  the  Agency  to  conclude  that  the  merger  will  not  have  an 


 anticompetitive  effect  in  the  relevant  market.  When  the  potential  adverse  competitive  effect  of  a  merger  is  likely  to  be  particularly  large,  extraordinarily  great  cognizable  efficiencies  would  be  necessary  to  prevent  the  merger 
 from  being  anticompetitive.). 
 873  As  examples  of  innovations  News  Corp.  introduced  into  DTH  services,  the  Applicants  cite:  (1)  BSkyB's 
 conversion  to  digital  technology  in  1998  and  its  decision  to  provide  free  set-  top-  boxes  and  dishes  in  1999;  (2)  BSkyB's  introduction  of  an  interactive  news  service  in  2000,  which  offered  multiple  segments  broadcast 


 simultaneously;  (3)  BSkyB's  subsequent  introduction  of  additional  interactive  services,  such  as  "shopping,  banking,  games,  e-  mail,  travel,  tourism  and  information  services;"  and  (4)  BSkyB's  introduction  of  "Europe's  first 
 fully  integrated  DVR."  As  examples  of  News  Corp.  's  innovations  in  programming,  the  Applicants,  among  other  (continued.) 
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 321.  Interactive  Television.  News  Corp.  claims  that  it  will  use  its  experience  from  launching  interactive  television  (  ITV)  services  in  the  U.  K.  through  BSkyB  to  enhance  the  ITV  capabilities 
 available  to  DirecTV  subscribers  and  to  create  a  greater  level  of  awareness  among  consumers.  874  According  to  Applicants,  BSkyBs  SkyActive  service  offers  interactive  news  and  delivers  online 
 shopping,  banking,  games,  e-  mail,  travel,  tourism,  and  information  services  with  all  the  look,  feel,  and  immediacy  that  customers  expect  from  television.  875  Subscribers  can  choose  from  multiple  segments 
 being  broadcast  simultaneously  on  a  news  channel,  view  multiple  screens  of  programming  within  a  certain  genre  and  click  on  the  one  that  interests  them,  and  can  choose  from  among  multiple  camera  angles 
 during  the  broadcast  of  sporting  events.  876  Applicants  contend  that  an  ITV  offering  will  make  DirecTV  a  better  competitor  in  the  MVPD  market.  877 


 322.  Applicants  have  additionally  stated  that,  as  a  first  step  toward  introducing  robust  interactive  services,  the  merged  entity  would  release  a  new  user  interface  in  2004  that  will  be 
 incorporated  in  all  new  set-  top-  boxes  and  will  be  downloaded  to  as  many  as  10  million  legacy  set-  top-boxes  that  are  already  operating  in  subscribers  homes.  878  Applicants  further  state  that,  by  the  end  of 
 2004,  the  parties  will  incorporate  new  middleware  into  subscriber  set-  top-  boxes  that  will  enable  DirecTV  to  introduce  new  interactive  services,  including  interactive  news,  weather,  traffic,  and  games.  879 


 323.  Several  parties  opposing  the  transaction  contend  that  allowing  News  Corp.  to  apply  its  experience  and  assets  relating  to  ITV  services  to  DirecTV  will  result  in  public  interest  harms,  rather  than 
 a  benefit.  880  These  arguments  are  addressed  in  section  VI.  C.  4.  d,  supra. 
 324.  Integrated  Set-  top  Boxes.  Applicants  also  claim  that  the  proposed  transaction  will  increase  the  penetration  of  digital  video  recorders  (  DVRs)  contained  in  integrated  set-  top  boxes. 


 According  to  Applicants,  the  merged  entity,  by  drawing  on  the  marketing  expertise  within  FEG,  BSkyB 
 (Continued  from  previous  page)  things,  point  to:  (1)  News  Corp.  's  introduction  of  the  Fox  Network  in  1986;  (2)  its  launch  of  Fox  News  Channel  in 


 1996;  (3)  its  innovations  in  the  news  and  informational  programming  offered  by  Fox  Television  Stations;  and  (4)  its  founding  of  Fox  Sports  Net  in  1997.  Application  at  21-  27. 


 874  Application  at  22;  Giacalone  Decl.    19-  20. 
 875  Id.;  see  also  News  Corp.  July  28  Response  at  41. 
 876  Id. 
 877  Application  at  23;  see  also  News  Corp.  Sept.  10  Ex  Parte  at  2  and  Attachment  2. 
 878  Applicants  Sept.  22  Ex  Parte  at  4. 
 879  Applicants  Sept.  22  Ex  Parte  at  4.  To  facilitate  implementation  of  its  ITV  plans,  News  Corp.  entered  into  two 
 agreements  with  Thomson  on  September  13,  2003.  Under  the  first  agreement,  News  Corp.  purchased  the  MEDIAHIGHWAY  middleware  business  from  Thomson.  The  Applicants  claim  the  MEDIAHIGHWAY  product 


 line  will  enable  set-  top-  boxes  to  better  interpret  and  execute  interactive  applications.  Under  the  terms  of  the  second  agreement,  News  Corp.  and  Thomson  will  enter  into  a  non-  exclusive  preferred  supplier  relationship,  which 
 the  Applicants  claim  will  enable  News  Corp.  to  capture  economies  of  scale  and  scope.  Id.  at  5-  6. 
 880  See  CDD  Petition  at  4;  NAB  Comments  at  20.  For  example,  NAB  argues  generally  that  beyond  simple  blatant 
 denials  of  access  to  DirecTV,  the  post-  transaction  entity  could  discriminate  against  content  owners  in  such  technology-  related  areas  as  interactivity,  channel  assignment  and  positioning,  use  of  navigation  devices  and 


 electronic  program  guides,  date  transfer  speed  and  downstream  and  upstream  return  path  traffic.  Id. 
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 and  other  affiliated  companies  .  .  .  [will]  create  consumer  awareness  of  and  demand  for  the  product.  881  Applicants  state  that  they  plan  to  deploy  set-  top-  boxes  with  integrated  DVRs  at  more  competitive  prices 
 by  2005.  882  In  addition,  they  claim  that  they  are  exploring  the  potential  of  incorporating  digital  terrestrial  television  tuners  into  DirecTV  set-  top  boxes.  883  They  further  claim  that  these  digital  signals 
 can  be  seamlessly  processed  by  the  set-  top-  box  with  the  DirecTV  satellite  signal  in  a  manner  that  will  be  transparent  to  the  viewer.  884  Applicants  also  contend  that  the  proposed  transaction  should  result  in  a 
 significant  reduction  in  signal  piracy  because  of  the  post-  transaction  combination  of  efforts  by  DirecTV  (which  currently  uses  its  own  proprietary  conditional  access  technology)  and  News  Corp.  's  subsidiary, 
 NDS,  a  leading  provider  of  conditional  access  technology.  885 
 325.  Discussion.  We  find  that  News  Corp.,  under  the  leadership  of  Rupert  Murdoch,  has  demonstrated  a  willingness  to  take  risks,  introduce  innovative  services,  and  fundamentally  change  the 


 nature  of  competition  in  multiple  media  markets.  And  in  numerous  cases,  this  willingness  to  take  risks  has  benefited  both  News  Corp.  and  consumers.  For  example,  in  its  management  of  BSkyB,  Sky  Italia, 
 and  its  other  DTH  operations,  News  Corp  has  demonstrated  a  willingness  to  take  risks  in  introducing  and  promoting  new  services,  including,  in  particular,  interactive  services  and  new  programming  channels. 
 We  further  find  that  these  innovations  have  generated  increased  subscriber  growth  and  reduced  churn,  indicating  increased  consumer  satisfaction.  For  example,  in  October  1998  BSkyB  introduced  digital 
 satellite  service  and  aggressively  promoted  it  by  giving  away  set-  top  boxes  and  introducing  a  new  low-cost  entry-  level  digital  tier.  886  Between  its  introduction  of  digital  DTH  service  in  October  1998  and  June 
 2002,  News  Corp.  increased  the  total  number  of  subscribers  to  BSkyB  from  3,547,000  to  6,101,000  (an  increase  of  72%),  while  reducing  churn  significantly.  887  Moreover,  the  majority  of  this  increase  followed 
 the  introduction  of  digital  interactive  services.  888  In  fact,  in  the  first  six  months  after  the  introduction  of 


 881  Application  at  23. 
 882  Applicants  Sept.  22  Ex  Parte  at  5. 
 883  Application  at  29-  30.  The  Applicants  contend  that,  [  b]  y  mounting  a  small  antenna  for  receiving  broadcast 
 signals  at  the  same  point  where  the  satellite  dish  is  located,  most  subscribers  would  be  able  to  receive  digital  television  broadcast  signals  from  their  local  stations  over-  the-  air.  Id. 


 884  Id.  at  30. 
 885  Application  at  37.  NDS  is  also  a  leading  supplier  of  open  end-  to-  end  digital  systems  and  solutions  for  the 
 secure  delivery  of  entertainment  and  information  to  televisions  and  IP  devices.  NDS  enables  broadcasters,  network  operators  and  content  providers  to  profit  from  the  deployment  of  digital  TV  technologies  including 


 innovative  interactive  applications  and  personal  TV,  secure  broadband  and  datacasting  solutions.  See  NDS,  About  NDS,  at  http://  www.  nds.  com/  about_  nds/  about_  nds.  html  (visited  Sept.  11,  2003). 


 886  See,  e.  g.,  Dan  Milmo,  BSkyB  Does  Digital  Dash  to  7  m  Subscribers  Mark,  THE  GUARDIAN  (Sep.  29,  2003) 
 ("  Sky  Digital's  growth  was  backed  by  a  high-  risk  strategy  .  .  .  of  giving  away  set-  top  boxes  to  customers  for  free.");  Paul  Davies,  BSkyB  Makes  Bid  for  Mass-  Market  with    6.99  Entry-  Level  Digital  Tier,  NEW  MEDIA 


 MARKETS  1  (Aug.  13,  1998)(  BSkyB  offers  cheaper  than  expected  entry-  level  digital  tier).  . 
 887  Letter  from  Gary  M.  Epstein,  Counsel  for  General  Motors  Corp.  and  Hughes  Electronics  Corp.,  et  al.  to 
 Marlene  H.  Dortch  (Sept.  10,  2003)  (  Applicants'  Sept.  10  Ex  Parte)  at  Attachment  2.  See  also  Applicants  Sept.  22  Ex  Parte  at  8. 


 888  Applicants  Sept.  10  Ex  Parte,  Attachment  2. 
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 interactive  TV  news  in  June  2000,  BSkyB's  subscribership  increased  by  12  percent.  889  News  Corp.  has  also  aggressively  introduced  new  programming  and  programming  services  in  its  Sky  Italia  and  STAR 
 operations.  For  example,  Sky  Italia  launched  a  new  24-  hour  news  channel  in  August  2003.  890  Similarly,  in  Asia,  STAR  expanded  its  offering  of  services,  ranging  from  radio  to  television  to  interactive  digital 
 cable  TV,  891  and  including  the  introduction  of  Xing  Kong  Wei  Shi,  the  first  all-  new  channel  granted  cable  carriage  in  mainland  China.  892 


 326.  News  Corp.  has  pursued  a  similar  strategy  of  innovation  and  aggressive  competition  in  the  United  States  and  in  many  cases  has  successfully  challenged  incumbent  broadcast  and  cable 
 programming  networks.  For  example,  in  the  mid-  1980s,  News  Corp.  purchased  six  television  stations  and  then  challenged  the  long-  standing  dominance  of  the  then  big-  three  broadcast  television  networks  by 
 launching  a  fourth  broadcast  network,  despite  widespread  skepticism  that  no  such  network  could  survive.  893  Over  the  years,  News  Corp.  acquired  additional  independent  broadcast  television  stations  and 
 entered  into  affiliation  agreements  with  more,  and  News  Corp.  helped  the  local  stations  build  market  share  by,  among  other  things,  introducing  prime-  time  local  news  broadcasts  (the  10:  00  p.  m.  time  slot),  by 
 introducing  new  and  popular  programming  on  the  Fox  network  (such  as  The  Tracey  Ullman  Show,  Married.  .  .  .With  Children,  The  Simpsons,  America's  Most  Wanted,  The  X-  Files,  and  24)  and  by 
 outbidding  CBS  for  the  right  to  broadcast  National  Football  Conference  games.  894  News  Corp.  has  been  similarly  aggressive  in  introducing  new  cable  networks.  For  example,  its  launch  of  Fox  News  Channel 
 brought  a  new  perspective  on  cable  news  and  brought  heightened  competition  to  a  market  that  previously  had  been  dominated  by  CNN.  895  Similarly,  News  Corp.,  by  accumulating  stakes  in  a  number  of  regional 
 networks  and  by  aggressively  bidding  for  broadcast  rights,  built  Fox  Sports  Net  into  the  largest  RSN  that  now  challenges  ESPN.  896  Finally,  News  Corp.  has  introduced  new  and  innovative  programming  on  its 
 various  overseas  DTH  platforms.  897 
 327.  Given  News  Corp.  's  history  of  taking  significant  risks  and  introducing  new  and  innovative  media  services,  including  in  particular  DTH  services,  we  find  credible  the  Applicants'  claim 


 that  they  will  accelerate  the  introduction  of  new  DTH  services,  including  interactive  services.  Moreover,  it  has  been  reported  that  cable  MSOs,  in  anticipation  of  the  consummation  of  this  proposed  transaction, 


 889  Id. 
 890  Id.;  Gagliardi  Aff.  at  2. 
 891  News  Corp.  2003  Annual  Report  at  17. 
 892  News  Corp.  2002  Annual  Report  at  21. 
 893  See,  e.  g.,  WALL  ST.  J.  May  17,  1985;  WASHINGTON  POST,  May  19,  1985;  BUSINESS  WEEK,  May  20,  1985; 
 Application  at  24. 
 894  See,  e.  g.,  WALL  ST.  J.,  May  27,  1987;  LOS  ANGELES  DAILY  NEWS,  Jan.  1,  1990;  WALL  ST.  J.  Dec.  20,  1993; 
 PORTLAND  OREGONIAN,  May  15,  1994;  ST.  LOUIS  DISPATCH,  October  31,  1996;  Application  at  24. 
 895  See,  e.  g.,  ROCKY  MOUNTAIN  NEWS,  Mar.  3,  1996;  Application  at  ii-  iii,  23-  24;  Applicants  Reply  at  78. 


 896  FORTUNE,  Oct.  26,  1998,  at  92  et  seq.;  Fox  Entertainment  Group,  Form  10-  K  (for  the  year  ending  Jun.  30, 
 2000);  Application  at  26. 
 897  News  Corp.  2003  Annual  Report  at  17  &  21;  Application,  Gagliardi  Decl.    12;  Applicants'  Sept.  22,  2003  ex 
 parte  at  10. 
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 are  already  stepping  up  plans  to  introduce  new  interactive  services.  898  In  this  regard,  we  find  that  News  Corp.  's  recent  acquisition  of  MEDIAHIGHWAY  from  Thomson  for  $66.5  million  indicates  a  commitment 
 on  the  part  of  News  Corp.  to  interactive  television.  899  Although  we  can  not  estimate  exactly  the  value  to  consumers  of  News  Corp.  's  innovative  management  style,  we  find  it  to  be  a  major  benefit  to  the  public  of 
 the  transaction.  900 
 328.  On  the  other  hand,  we  find  that  the  Applicants  have  not  demonstrated  that  their  claims  concerning  increased  penetration  of  integrated  set-  top-  boxes  are  either  credible  or  transaction-  specific. 


 More  specifically,  we  find  that  the  Applicants  make  broad  claims  about  set-  top  boxes  without  providing  adequate  supporting  evidence.  In  addition,  with  respect  to  the  claim  that  they  might  integrate  digital 
 terrestrial  television  tuners  into  DirecTV  set-  top  boxes,  they  do  not  explain  why  this  integration  could  not  take  place  in  the  absence  of  the  transaction. 


 2.  Increased  Offering  of  Local-  into-  Local,  HDTV,  and  Broadband  Services 
 329.  Applicants  claim  that,  after  the  merger,  News  Corp.:  (1)  will  bring  its  commitment  to  local-  into-  local  to  DirecTV  and  thus  increase  the  number  of  DMAs  in  which  local  broadcast  signals  are 


 available;  (2)  will  increase  the  amount  of  HDTV  programming  that  DirecTV  makes  available;  and  (3)  will  develop  new  options  for  consumer  broadband  services.  901  Applicants  state  that  they  will  consider  using 
 new  satellites  and  new  technologies  to  achieve  that  goal,  and  they  specifically  point  to  the  possibility  of  using  Ka-  band  satellite  capacity  and/  or  integrating  digital  terrestrial  tuners  into  the  DirecTV  set-  top 
 boxes.  Applicants  further  assert  that  News  Corp.  will  work  aggressively  to  expand  broadband  options  to  better  compete  with  cables  video  and  broadband  offerings. 


 330.  NRTC  and  ACA  respond  that  Applicants  have  not  explained  how  the  merged  firm  will  expand  local-  into-  local  service  and  have  not  made  a  commitment  as  to  how  many  markets  it  will  serve. 
 NRTC  asserts  that,  while  Applicants  claim  that  they  will  increase  both  local-  into-  local  and  HDTV,  they  do  not  explain  how  they  will  accomplish  both  at  the  same  time.  902  NRTC  asserts  that  the  same  is  true 
 with  respect  to  broadband  services  --  that  the  Applicants  have  failed  to  discuss  how  or  when  DirecTVs  satellite  broadband  offerings  will  be  expanded.  903  ACA  asserts  that  News  Corp.  could  increase  the 
 availability  of  HDTV  nationwide  by  broadcasting  HD  on  Fox  Network.  904  JCC  claim  that  Applicants  admit  that  Hughes  can  expand  DirecTVs  local-  into-  local  offerings  absent  the  transaction.  905  EchoStar 


 898  See  MULTICHANNEL  NEWS,  December  1,  2003. 
 899  Id.  at  5;  see  also  Applicants  Sept.  22,  2003  Ex  Parte  at  5. 
 900  Certain  parties,  including  CDD,  contend  that  the  transaction  will  give  News  Corp.  a  stranglehold  over  ITV 
 technologies  and  products,  including  conditional  access  technologies.  These  comments  are  addressed  in  section  VI.  C.  4.  d.  ii,  supra. 


 901  Application  at  27. 
 902  NRTC  Petition  at  17-  18;  ACA  Comments  at  25-  26. 
 903  NRTC  Petition  at  19.  NRTC  urges  that  we  require  Applicants  to  make  specific  commitments  to  deploy 
 broadband  services  to  rural  America.  Id.  at  19-  20. 
 904  ACA  Comments  at  26-  27. 


 905  JCC  Comments  at  68. 
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 contends  that  these  claims  are  not  transaction-  specific,  and  that  DirecTV,  absent  the  transaction,  has  access  to  all  the  means  cited  by  Applicants  for  providing  local-  into-  local  in  additional  markets.  EchoStar 
 also  states  that  DirecTV  has  already  announced  that,  without  the  merger,  it  will  offer  additional  HDTV,  for  a  total  of  seven  HDTV  channels.  Finally,  EchoStar  asserts  that,  to  the  extent  that  News  Corp.  enters 
 into  partnering  arrangements  with  existing  broadband  providers,  this  will  not  create  new  broadband  options.  906 


 331.  Responding  to  critics'  questioning  of  the  claim  that  the  merger  will  result  in  an  increase  in  the  number  of  DMAs  receiving  local  broadcast  television  signals  via  satellite,  Applicants  point  to  News 
 Corp's  expertise  and  commitment  to  local  services,  and  the  economies  of  scale  and  scope  and  improved  access  to  capital  that  will  result  from  the  transaction.  And  they  contend  that  these  factors  provide 
 sufficient  evidence  that  such  an  expansion  will  occur.  With  respect  to  NRTC  and  EchoStar's  argument  concerning  expanded  broadband  deployment,  Applicants  acknowledge  that  Hughes  already  provides 
 broadband  and  could  engage  in  various  partnering  solutions,  but  maintain  that,  as  a  result  of  the  proposed  transaction,  DirecTV  will  be  able  to  increase  these  offerings,  due  to  its  improved  capital  structure.  907 


 332.  Applicants  subsequently  committed  to  a  schedule  for  providing  a  greater  number  of  local  channels  and/  or  HDTV  channels  than  DirecTV  previously  announced.  Specifically,  they  committed  to 
 provide  by  end  of  2004,  either  local  channels  in  30  additional  DMAs,  or  30  more  national  HDTV  channels,  or  some  combination  of  additional  local-  into-  local  DMAs  and  HDTV  channels,  based  on  the 
 bandwidth  requirements.  908  In  addition,  Applicants  claim  that,  in  the  longer  term,  they  will  design  and  launch  a  new  generation  of  satellites  as  early  as  2006  and  no  later  than  2008  that  will  provide  much 
 greater  capacity  for  DirecTV  services.  This  effort,  which  involves  a  financial  commitment  above  that  which  Hughess  current  owner  has  authorized,  will  enable  DirecTV  to  provide  local  broadcast  channels  in 
 all  210  DMAs,  including  local  channels  in  HDTV  format  in  select  markets.  909  Applicants  stated  that,  as  early  as  2006  and  no  later  than  2008,  (1)  DirecTV  will  offer  a  seamless,  integrated  local  channel  package 
 in  all  210  DMAs,  and  (2)  DirecTV  will  offer  at  least  200  to  300  channels  of  local  and  national  HDTV  programming.  Applicants  claim  that  DirecTV  will  be  the  strongest  possible  competitor  to  cable  only  if  it 
 can  provide  consumers  with  their  local  broadcast  channels  and  with  HDTV  programming  and  that  they  intend  to  extend  that  capability  as  quickly  and  efficiently  as  possible.  910 


 333.  Discussion.  The  Commission  has  long  recognized  the  importance  of  local  broadcast  television  and  its  contribution  to  the  Commission's  goal  of  fostering  localism  in  media.  To  the  extent  that 
 the  transaction  results  in  an  increase  in  the  amount  of  DBS-  provided  local-  into-  local  service  and/  or  the  number  of  HDTV  channels  offered  to  subscribers,  this  should  increase  competition  in  MVPD  markets  and 
 should  benefit  consumers  through  increased  choice,  lower  prices,  or  both.  In  addition,  we  find  that 


 906  EchoStar  Petition  at  40-  43. 
 907  Applicants'  Reply  at  n.  224;  Applicants  July  28  Response  at  35. 
 908  See  Letter  from  William  M.  Wiltshire,  Counsel  for  The  News  Corporation,  et  al.,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  (September  22,  2003)  ("  Applicants'  Sept.  22  Ex  Parte")  at  3. 
 909  Id.  at  2,  4. 


 910  Id.  at  4. 
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 increasing  the  number  of  DMAs  in  which  DirecTV  subscribers  can  receive  local  broadcast  television  stations  furthers  the  Commission's  goal  of  promoting  localism.  911 
 334.  Applicants  have  alleged  that  a  benefit  of  the  transaction  will  be  the  provision  by  the  end  of  2004,  by  DirecTV  of  either  local  channels  in  an  additional  30  DMAs  or  30  more  channels  of  HDTV,  or 
 a  combination  of  local  channels  and  HDTV  channels  that  have  similar  bandwidth  requirements  above  and  beyond  what  had  been  previously  funded,  projected  or  planned  by  Hughes/  DirecTV.  912  In  order  to  ensure 
 that  Applicants  live  up  to  their  commitment  to  achieve  the  important  public  interest  benefit  of  increased  local  channel  service  to  all  regions  of  the  country,  we  require,  as  a  condition  of  our  license  transfer 
 approval,  that,  by  year  end  2004,  Applicants  provide  local  channel  service  in  an  additional  30  DMAs  beyond  what  had  been  previously  funded,  projected  or  planned  by  Hughes/  DirecTV.  In  the  event  that 
 circumstances  beyond  DirecTVs  control  limit  its  ability  to  fulfill  this  license  condition,  DirecTV  may  petition  the  Commission  for  waiver  pursuant  to  Commission  rules.  913 


 3.  Increased  Operating  Efficiencies 
 335.  Applicants  claim  that,  as  a  result  of  the  transaction,  DirecTV  will  realize  savings  in  annual  overhead  and  other  operating  expenses  in  the  range  of  $65  million  to  $135  million.  These  savings, 


 according  to  the  Applicants,  will  be  due  largely  to  News  Corp.  s  experience  in  direct  to  home  satellite  services  and  its  commitment  to  cost-  efficient  operations.  The  major  elements  of  these  claimed  savings 
 are:  (1)  savings  of  $40-  80  million  from  reduced  customer  service  costs,  of  which  $20-  40  million  is  assumed  to  be  merger-  specific;  (2)  savings  of  $40-  80  million  from  reduced  general  and  administrative 
 expenses;  and  (3)  savings  of  $7-  15  million  from  drawing  on  News  Corp.  s  experience  and  rationalizing  operational  areas  of  overlap.  914 


 336.  ACA  responds  that,  to  the  extent  that  the  Applicants  might  realize  any  efficiencies,  they  will  provide  the  merged  firm  with  resources  to  support  anticompetitive  conduct.  915  EchoStar  and  JCC 
 state  that  the  claimed  efficiencies  are  unsupported  by  the  evidence,  are  not  transaction-  specific  and  verifiable,  and  that  the  benefits  of  those  efficiencies  would  flow  to  News  Corp.  rather  than  to 
 consumers.  916 
 337.  Discussion.  Excluding  for  the  moment  savings  that  result  from  integration  of  the  current  distribution  facilities  of  News  Corp.  and  DirecTV,  Applicants  have  not  provided  sufficient  supporting 


 evidence  for  us  to  verify  and  quantify  the  claimed  savings  resulting  from  increased  operating  efficiency.  More  importantly,  Applicants  have  not  demonstrated  that  the  claimed  savings  in  operating  costs  are 
 transaction  specific.  In  this  regard,  we  note  that  many  of  the  claimed  savings  are  related  to  the  introduction  of  best  practices,  but  Applicants  fail  to  demonstrate  why  DirecTV,  by  itself  or  through 
 other  means  that  pose  fewer  competitive  risks  than  the  merger,  could  not  also  introduce  those  same  best 
 911  See,  e.  g.,  2002  Biennial  Review  Order,  18  FCC  Rcd  at  13643-  45    73-  79. 
 912  Applicants'  Sept.  22  Ex  Parte  at  2. 
 913  See  47  C.  F.  R.    1.925. 
 914  Application  at  31-  33,  Giacalone  Decl.    9-  14. 
 915  ACA  Comments  at  26. 
 916  EchoStar  Petition  at  43-  44;  JCC  Comments  at  69-  70. 
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 practices.  For  example,  Applicants  claim  that,  with  the  proposed  transaction,  DirecTV  might  reduce  its  costs  by  scaling  back  its  reliance  on  third-  party  customer  service  centers,  and  performing  that  function  in-house. 
 Applicants  estimate  annual  savings  of  $40-$  80  million  annually  by  instituting  this  change.  Applicants  claim  that  half  those  savings  would  be  transaction  specific,  but  provide  no  evidence  that  the 
 incentive  or  ability  to  increase  the  use  of  in-  house  service  centers  is  unique  to  News  Corp.  or  that  specific  synergies  exist  by  which  News  Corp.  could  operate  in-  house  customer  service  facilities  more  efficiently 
 than  an  outside  contractor,  or  than  could  DirecTV  itself  if  it  provided  customer  service  solely  on  an  in-house  basis.  In  fact,  DirecTV  currently  has  ten  customer  service  centers,  one  of  which  is  operated  in-house. 


 338.  Applicants  also  estimate  annual  savings  of  $7-  15  million  by  rationalizing  operational  areas,  including  the  sharing  of  national  distribution  facilities  operated  by  Fox  Cable  Networks  and  by 
 DirecTV.  917  We  note,  however,  that  News  Corp.  will  have  only  a  partial  interest  in  DirecTV,  and  this  may  affect  the  feasibility  of  realizing  benefits  related  to  rationalizing  operational  areas.  918  In  particular, 
 the  Applicants  have  not  demonstrated  that,  with  a  34%  interest  in  DirecTV,  News  Corp.  could  realize  benefits  above  that  which  DirecTV  could  already  realized  through  contractual  agreement  with  News 
 Corp.  or  some  other  entity.  919  Thus,  we  exclude  these  savings  from  estimated  benefits  of  this  transaction. 
 4.  Economies  of  Scope  and  Scale 
 339.  Applicants  claim  that  the  proposed  transaction,  by  more  than  doubling  the  post-transaction  entitys  subscriber  base  (from  11.4  million  for  DirecTV  alone  to  over  23  million  subscribers 


 for  News  Corp./  DirecTV  worldwide),  will  allow  the  merged  entity  to  take  advantage  of  economies  of  scale  and  scope.  For  example,  Applicants  claim  that,  by  spreading  the  costs  of  research  and  development 
 ("  R&  D")  over  all  News  Corp.  's  satellite  operations  and  by  pursuing  common  technology  standards  for  both  hardware  and  software,  will  be  able  to  develop  and  introduce  innovations  more  economically.  920 
 Applicants  further  claim  that  the  transaction  will  permit  the  merged  entity  to  explore  more  efficiently  next-  generation  technologies,  such  as  improved  video  and  audio  compression,  improved  spectrum 
 efficiency  using  8PSK  and  other  advanced  modulation  techniques  and  Turbo  coding.  921  Finally, 


 917  It  appears  that  these  claimed  savings  were  not  included  in  the  estimate  of  the  total  savings  that  would  result 
 from  the  merger.  See  Application,  Giacalone  Decl.    7. 
 918  In  this  regard,  we  note  that  the  Applicants  attempt  to  rebut  claims  that  News  Corp.  and  DirecTV  will  engage  in 
 temporary  foreclosure  on  the  ground  that  News  Corp.  will  possess  only  a  minority  interest  in  DirecTV  and  that  consequently  joint  profit  maximization  is  not  feasible.  The  logic  of  this  argument  also  suggests  that  News  Corp.  's 


 minority  interest  should  also  limit  the  ability  of  the  Applicants  to  jointly  achieve  operating  efficiencies. 
 919  We  use  the  34%  ownership  stake  in  evaluating  this  claimed  benefit  because  this  is  the  ownership  stake  that 
 News  Corp.  will  possess  immediately  after  consummation  of  the  transaction,  and  there  is  no  certainty  that  News  Corp.  will  increase  that  stake.  In  analyzing  potential  harms,  however,  we  use  higher  ownership  stakes  because 


 News  Corp.  may  increase  its  ownership  interest  without  further  Commission  review,  and  this  may  affect  its  incentive  to  engage  in  temporary  foreclosure. 


 920  Application  at  34. 
 921  Application  at  34. 
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 Applicants  claim  that  the  vertical  integration  that  will  result  from  the  transaction  will  reduce  the  risks  of  developing  and  launching  new  programming.  922 
 340.  In  addition,  Applicants  contend  that  the  proposed  transaction  can  achieve  significant  economies  of  scope  and  scale  in  the  area  of  set-  top  boxes.  923  According  to  Applicants,  DirecTVs  set-top 
 boxes,  which  use  a  DirecTV  proprietary  standard,  can  be  incorporated  into  the  set-  top-  box  platform  used  by  News  Corp.  satellite  affiliates.  924  They  argue  that,  by  specifying  the  design  of  its  set-  top-  boxes  in 
 greater  detail  than  DirecTV  has  in  the  past,  set-  top-  box  manufacturers  will  be  able  to  minimize  their  development  costs  and  maximize  component  purchasing  power,  resulting  in  lower  costs  to  DirecTV.  925 
 Applicants  further  argue  that  research  and  development  costs  can  be  reduced  by  pursuing  common  technology  standards  across  DirecTV  and  its  other  satellite  affiliates.  926  According  to  Applicants,  these 
 cost  savings  will  amount  to  about  $10  per  set-  top  box  (or  approximately  $60  million  annually).  927  The  Applicants  claim  that  these  cost  savings  will  not  only  benefit  the  customer  purchasing  a  new  set-  top-  box, 
 but  also  reduce  the  subsidies  required  by  the  operators.  928  Applicants  contend  that  this  will  all  be  possible  without  swapping  out  set  top  boxes.  929 


 341.  JCC  counter  that,  in  concluding  that  set-  top-  box  costs  will  decrease  by  $10  per  box,  Applicants  have,  erroneously,  assumed  that  News  Corp.  manufactures  its  own  set-  top-  boxes.  JCC 
 maintain  that  the  third  party  set-  top-  box  vendors  already  compete  to  provide  the  best  technology  at  the  lowest  price,  and  that  the  proposed  transaction  will  only  decrease  the  number  of  buyers  in  that  market.  930 
 EchoStar  claims  that  any  savings  would  flow  to  News  Corp.  s  shareholders,  and  not  to  consumers.  931 
 342.  Discussion.  To  the  extent  that  the  proposed  transaction  enables  the  parties  to  combine  their  R&  D  efforts  and  to  spread  the  cost  of  those  R&  D  efforts  over  multiple  satellite  operations,  this  may 


 increase  the  merged  entitys  incentive  to  innovate,  which  could  result  in  new  products  and  services  that  would  not  have  been  introduced  absent  the  proposed  transaction.  To  the  extent  this  occurs,  such  benefits 
 should  be  taken  into  account.  On  the  other  hand,  if  the  innovations  were  developed  by  a  third  party  who  could  sell  its  innovation  to  DBS  or  DTH  providers  worldwide  (or  if,  absent  the  transaction,  News  Corp. 
 and  DirecTV  would  sell  their  innovations  generally),  then,  as  JCC  point  out,  it  is  not  clear  that  the  proposed  transaction  would  increase  the  incentive  to  innovate. 


 922  Id.  at  35. 
 923  The  Applicants'  claims  concerning  economies  of  scale  in  set-  top  boxes  are  discussed  in  greater  detail  in  section 
 VI.  C.  3.  d  infra. 
 924  Application  at  33-  35;  News  Corp.  July  28  Response  at  39. 


 925  Id. 
 926  Id. 
 927  Id.,  at  35;  Giacalone  Decl.    22. 
 928  News  Corp.  July  28  Response  at  39. 
 929  Id.  at  39  n.  30. 
 930  JCC  Comments  at  70-  71. 
 931  EchoStar  Comment  at  45. 
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 343.  Similarly,  if  the  merged  entity  can  secure  larger  volume  discounts  from  suppliers,  and  then  pass  those  lower  costs  through  to  consumers  in  the  form  of  lower  end-  user  prices,  this  likewise 
 would  constitute  a  public  interest  benefit  that  should  be  considered  in  balancing  the  potential  harms  and  benefits  of  the  proposed  transaction.  If,  on  the  other  hand,  the  volume  discounts  take  the  form  of  savings 
 in  fixed  costs,  and  those  savings  are  not  passed  on  to  consumers,  then  we  would  be  less  inclined  to  treat  such  savings  as  a  public  interest  benefit. 


 344.  Based  on  the  evidence  presented  by  Applicants,  we  believe  that  the  transaction  is  likely  to  enable  the  merged  entity  to  achieve  certain  economies  of  scale  and  scope,  particularly  in  R&  D,  that 
 absent  the  transaction  the  parties  individually  could  not  have  achieved.  At  the  same  time,  it  is  not  clear  that  all  $60  million  estimated  by  Applicants  would  qualify  as  a  cognizable  public  interest  benefits,  either 
 because  the  savings  are  not  transaction  specific  (such  as  when  innovations  are  produced  by  third  parties  and  sold  generally)  or  because  it  is  not  clear  that  the  savings  will  be  flowed  through  to  consumers.  Thus, 
 while  we  believe  that  the  proposed  transaction  will  yield  certain  transaction-  specific,  cognizable  benefits  resulting  from  economies  of  scale  and  scope,  we  do  not  accept  the  total  savings  estimated  by  Applicants. 
 Accordingly,  while  we  accept  these  benefits  in  theory,  we  do  not  give  significant  weight  to  them  in  our  balancing  of  potential  public  interest  harms  and  benefits. 


 5.  Improved  Customer  Satisfaction  and  Reduced  Churn 
 345.  Applicants  claim  that,  because  the  post-  transaction  entity  will  offer  more  and  better  quality  DBS  products,  customer  satisfaction  will  increase.  This  in  turn  should  enable  DirecTV  to  increase 


 its  subscriber  base  and  reduce  churn  and  generally  make  it  more  competitive  vis-  -  vis  other  MVPD  providers.  932  Applicants  also  contend  that  the  proposed  transaction,  by  bringing  together  the  conditional 
 access  technology  owned  by  News  Corp.  's  NDS  subsidiary,  and  DirecTV's  conditional  access  technology,  will  enable  the  merged  entity  to  reduce  signal  piracy.  933  Based  on  Applicants'  estimates  of  incremental 
 new  subscribers  and  its  estimates  of  savings  resulting  from  reduced  churn,  Applicants  project  an  annual  increase  in  earnings  of  $450  million  to  $525  million  by  2006.  934  Applicants  assert  that  these  revenues 
 will  be  used  for  additional  initiatives  that  will  produce  better  products  and  services. 
 346.  JCC  counter  that  the  claim  of  efficiencies  related  to  increased  customer  satisfaction  is  simply  a  restatement  of  the  claim  that  News  Corp.  will  bring  innovative  offerings  to  DirecTV,  and  that 


 this  claim  is  too  vague  to  be  recognized.  935  EchoStar  argues  that  this  claim  rests  on  the  earlier  assumptions  of  increased  local-  into-  local,  HDTV,  interactive  services  and  DVRs,  and  that  Applicants 
 have  not  shown  those  claims  to  be  transaction-  specific.  Noting  that  the  claim  relating  to  reduced  churn  is  based  in  part  on  BSkyBs  low  churn  rate,  EchoStar  further  argues  that  that  News  Corp.  faces  different 
 MVPD  competitors  in  the  U.  K.,  and  it  points  out  that  News  Corp.  has  not  specified  how  they  will  reduce  churn  for  DirecTV.  936 


 932  Application  at  36. 
 933  Id.  at  37. 
 934  Id.  at  36-  37. 
 935  JCC  Comments  at  70-  71. 
 936  EchoStar  Petition  at  44-  45. 
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 347.  Discussion.  As  various  opponents  of  the  transaction  suggest,  this  claimed  benefit,  to  a  large  extent,  duplicates  portions  of  previous  claims,  including  claims  that  the  proposed  transaction  will 
 allow  News  Corp.  to:  (1)  introduce  more  innovative  services;  (2)  provide  more  local-  into-  local  and  HDTV;  and  (3)  take  advantage  of  economies  of  scale  and  scope.  To  the  extent  that  this  claimed  benefit  is 
 duplicative  of  other  claimed  benefits,  the  benefits  should  not  be  counted  twice.  On  the  other  hand,  to  the  extent  that  the  earlier  benefits  are  cognizable,  it  is  appropriate,  in  evaluating  the  earlier  claims,  to  consider 
 not  only  the  cost  savings,  but  also  the  demand  response  to  any  resulting  decrease  in  price. 
 348.  To  the  extent  that  the  earlier  benefits  would  reduce  churn,  that  reduction  would  be  a  cognizable  component  of  those  benefits,  provided  that  the  earlier  benefits  are  found  to  be  transaction-specific. 


 Applicants  have  not  attempted  to  quantify  these  potential  consumer  benefits,  however,  but  have  only  estimated  the  potential  revenue  gain  to  the  merged  entity  of  between  $450  million  and  $525  million 
 by  2006.  When  we  balance  potential  harms  and  benefits  of  the  transaction,  however,  we  will  not  give  significant  weight  to  the  Applicants'  estimate  because  it  is  not  clear  whether  some  benefits  are  counted 
 twice  and  because  there  is  no  attempt  to  quantify  the  benefits  that  might  flow  through  to  consumers. 
 6.  Improved  Capital  Structure 
 349.  Positions  of  the  Parties.  Applicants  claim  that,  because  Hughes  is  a  wholly  owned  and  controlled  subsidiary  of  GM  and  currently  has  only  a  tracking  stock,  it  is  limited  in  its  ability  to  pursue 


 outside  financing.  The  proposed  transaction,  Applicants  claim,  will  eliminate  this  problem.  ACA  responds  that  DirecTV,  while  under  the  control  of  General  Motors,  attracted  substantial  investment, 
 including  a  $1.5  billion  investment  from  AOL.  ACA  further  argues  that  GMs  decision  on  how  much  to  invest  in  Hughes  should  have  no  bearing  on  the  public  interest.  937 


 350.  Discussion.  Although  the  proposed  transaction  may  improve  Hughes'  access  to  capital,  as  Applicants  contend,  we  do  not  believe  this  to  be  a  transaction-  specific  benefit.  Rather,  the  gist  of 
 Applicants'  argument  is  that  DirecTV  cannot  obtain  direct  access  to  the  capital  markets  (because  it  only  has  a  tracking  stock)  and  that  General  Motors  has  no  significant  interest  in  further  significant  investments 
 in  this  business.  To  the  extent  that  access  to  capital  is  a  problem,  however,  it  could  be  ameliorated  through  other  means  that  pose  fewer  competitive  risks  than  the  proposed  transaction,  such  as  spinning  off 
 DirecTV  so  that  it  has  its  own  traded  stock.  Thus,  since  the  capital  structure  could  be  improved  through  other  means  that  pose  fewer  competitive  risks,  this  claimed  benefit  is  not  transaction-  specific. 


 7.  Reduction  in  Double  Marginalization 
 351.  Applicants  claim  that  the  reduction  in  "double  marginalization"  which  results  from  vertical  integration  "will  create  a  downward  incentive  for  News  Corp.  's  programming  prices."  938  As 


 discussed  in  greater  detail  above,  we  agree  that  vertical  integration  can  reduce  prices  by  reducing  double  marginalization.  939  Nevertheless,  because  Applicants  have  neither  attempted  to  quantify  this  benefit  nor 
 provided  sufficient  information  for  the  Commission  to  quantify  the  benefit,  we  will  not  take  it  into  account  when  weighing  the  potential  harms  and  benefits  of  the  proposed  transaction. 


 937  ACA  Comments  at  27-  28. 
 938  Applicants'  Sept.  22,  2003  Ex  Parte  at  12.  See  also  Applicants'  Reply,  Lexecon  Report  at  6;  Applicants'  Reply, 
 CRA  Analysis  at  10-  12  &  Appendix  B. 
 939  See  Section  VI.  C.  4.  b.  iii,  supra. 
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 8.  Increased  Program  and  Employment  Diversity 
 352.  Positions  of  the  Parties.  Applicants  contend  that  the  transaction  will  benefit  the  public  by  increasing  programming  geared  to  linguistic,  ethnic,  and  cultural  minorities,  and  by  promoting 


 employment  diversity.  940  These  claims  are  summarized  and  discussed  below. 
 353.  Applicants  assert  that  the  proposed  transaction  would  increase  program  diversity  because  the  transaction  will  bring  News  Corp.  s  deep  commitment  to  diversity  to  Hughes,  resulting  in 


 DirecTVs  carriage  of  more  programming  targeted  at  culturally,  ethnically,  and  linguistically  diverse  audiences.  941  In  support  of  this  claim,  News  Corp.  cites  several  examples  of  its  commitment  to  diversity 
 in  programming,  including  television  programming  and  films  with  prominent  minority  cast  members  and  minority  directors.  942  Applicants  assert  that  the  nationwide  reach  of  DBS  service  will  allow  News  Corp. 
 to  efficiently  aggregate  and  reach  niche  audiences.  In  response  to  these  claims,  as  with  other  diversity  benefits  claimed  by  Applicants,  commenters  contend  that  Applicants  have  failed  to  show  that  there  is 
 anything  lacking  in  DirecTVs  commitment  to  diverse  programming.  943  Moreover,  several  commenters  contend  that  the  transaction  poses  potential  harms  to  program  diversity.  944 


 354.  The  Commission  has  traditionally  sought  to  increase  employment  of  women  and  minorities  by  broadcasters  and  MVPDs  through  its  equal  employment  opportunity  (  EEO)  rules  and 
 policies.  945  The  Commissions  rules  prohibit  discrimination  in  hiring  and  employment.  In  addition,  FCC  EEO  outreach  rules  require  broadcasters  and  MVPDs  to:  provide  wide  dissemination  of  job  vacancies; 
 undertake  initiatives  such  as  jobs  fairs  and  internships  to  assist  jobseekers  develop  skills  and  training;  and  evaluate  regularly  the  efficacy  of  these  efforts.  946 


 355.  Applicants  contend  that  the  proposed  transaction  will  serve  the  public  interest  by  promoting  employment  diversity.  947  Applicants  submit  that  News  Corp.  is  a  leader  in  promoting 
 employment  diversity,  and  that  its  commitment  to  such  diversity  will  be  expanded  to  DirecTV  as  a  result 
 940  Application  at  39-  43. 
 941  Application  at  42. 
 942  Id.;  Applicants  Sept.  11  Ex  Parte  at  3-  4. 
 943  ACA  Comments  at  28;  JCC  Comments  at  72. 
 944  ACA  Comments  at  3,  7,  16,  29;  Cablevision  Comments  at  23-  29;  CDD  Petition  at  2-  3;  CFA  Reply  Comments 
 at  9-  12;  EchoStar  Petition  at  39-  40;  NRTC  Petition  at  9-  16.  Commenters  concerns  about  potential  harms  to  program  diversity  are  discussed  at  section  VII.  A.  2  above.  There,  we  conclude  that  the  transaction  is  unlikely  to 


 reduce  program  diversity. 
 945  See  47  CFR  73.2080  (Broadcast  EEO  Rule);  47  CFR  76.75  (Cable  EEO  Rule). 


 946  In  2000,  the  Commission  adopted  EEO  rules  subsequently  invalidated  by  the  US  Court  of  Appeals  for  the 
 District  of  Columbia  Circuit.  MD/  DC/  DE  Broadcasters  Association  v.  FCC,  236  F.  3d  13  (D.  C.  Cir.  2001),  rehearing  denied  253  F.  3d  732  (D.  C.  Cir.  2001),  cert.  denied,  122  S.  Ct.  920  (2002).  The  Commission  adopted  its 


 current  broadcast  and  MVPD  EEO  rules  pursuant  to  a  further  rulemaking  proceeding.  Review  of  the  Commissions  Broadcast  and  Cable  Equal  Employment  Opportunity  Rules  and  Policies,  17  FCC  Rcd  24018 
 (2002)  (  EEO  Second  Report  and  Order). 
 947  Application  at  39-  43. 
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 of  the  proposed  transaction.  948  Applicants  cite  several  News  Corp.  EEO  initiatives,  including  its  Diversity  Development  Department,  which  is  focused  on  ensuring  a  diverse  workforce  as  well  as 
 diversity  in  procurement.  949  Applicants  report  that  News  Corp.  s  efforts  have  resulted  in  increased  opportunities  for  writers,  directors,  producers  and  actors  from  diverse  backgrounds.  950  Applicants  also 
 cite  News  Corp.  s  internship  and  apprenticeship  programs,  951  a  Fox  mentoring  program  for  minority  film  and  television  entrepreneurs,  952  and  the  fact  that  the  Fox  group  of  companies  now  has  a  much  more 
 diverse  group  of  suppliers.  953  Applicants  assert  that,  after  consummating  the  transaction,  it  will:  (1)  launch  a  mentoring  program  for  female  and  minority  entrepreneurs  who  seek  to  launch  niche  cable 
 channels;  (2)  recruit  and/  or  seek  to  promote  women  and  minorities  into  leadership  positions  at  Hughes;  (3)  implement  an  internship  program  at  Hughes  designed  to  attract  diverse  candidates;  (4)  evaluate  and/  or 
 modify  Hughes  procurement  programs  to  ensure  that  they  provide  opportunities  for  minorities;  and  (5)  upgrade  Hughes  internal  and  external  communications  to  facilitate  diversity  initiatives.  954 


 356.  As  with  Applicants  program  diversity  claims,  commenters  contend  that  these  claimed  benefits  are  not  transaction-  specific.  More  specifically,  they  argue  Applicants  have  not  shown  that 
 DirecTV  is  any  less  committed  to  diversity  than  is  News  Corp.  955 
 357.  Discussion.  We  agree  with  commenters  that  Applicants  have  failed  to  demonstrate  that  either  the  claimed  program  diversity  or  employment  diversity  benefits  are  transaction-  specific. 


 Applicants  have  described  several  News  Corp.  initiatives,  which  are  much  like  those  we  seek  to  promote  through  our  EEO  rules.  956  They  have  also  identified  a  significant  amount  of  News  Corp.  programming 
 developed  by  production  staff  from  diverse  backgrounds  which  is  targeted  to  diverse  viewing  audiences.  In  addition,  News  Corp.  contends  that  it  has  taken  steps  to  create  a  more  diverse  base  of  suppliers  of 
 equipment  and  services.  These  data  may  very  well  evidence  high  levels  of  program  diversity  and  successful  EEO  policies  at  News  Corp.  However,  Applicants  have  not  demonstrated  that  DirecTV  would 
 not  adopt  similarly  effective  EEO  initiatives  or  provide  similarly  diverse  programming  absent  the  transaction.  As  several  commenters  note,  there  is  no  evidence  in  the  record  that  DirecTVs  current 


 948  Application  at  39. 
 949  Application  at  40. 
 950  Application  at  40-  41. 
 951  Id.  at  41;  Applicants  Sept.  11  Ex  Parte  at  4-  7. 
 952  Application  at  42. 
 953  Application  at  42;  Applicants  Sept.  11  Ex  Parte  at  7-  9. 
 954  Application  at  42-  43. 
 955  ACA  Comments  at  28;  JCC  Comments  at  72. 
 956  We  note  also  the  presentation  at  the  inaugural  meeting  on  September  29,  2003,  of  the  Advisory  Committee  on 
 Diversity  for  Communications  in  the  Digital  Age  of  Mitsy  Wilson,  Senior  Vice  President,  Fox  Entertainment  Group,  News  Corp.  Ms.  Wilson  described  diversity  initiatives  at  Fox.  The  Federal  Advisory  Committee  on 


 Diversity  was  established  by  Chairman  Powell  in  May  2003  to  bring  together  experts  from  the  communications,  financial,  and  technology  communities  to  develop  recommendations  to  identify  potential  regulatory  actions  and 
 education  initiatives  that  can  promote  and  enhance  opportunities  for  minorities  and  women. 
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 programming  is  not  diverse,  or  that  its  EEO  polices  need  improvement.  Thus,  we  cannot  find  that  these  claimed  diversity  benefits  are  transaction  specific. 
 IX.  BALANCING  POTENTIAL  PUBLIC  INTEREST  HARMS  AND  BENEFITS 
 358.  Our  task  under  the  Communications  Act  is  to  determine  whether  the  public  interest,  convenience  and  necessity  will  be  served  by  the  granting  of  the  Application.  957  The  public  interest 


 standard  involves  a  balancing  of  potential  public  interest  harms  of  the  proposed  transaction  and  the  potential  public  interest  benefits.  958  The  Applicants  bear  the  burden  of  proving,  by  a  preponderance  of  the 
 evidence  that  the  proposed  transaction,  on  balance,  serves  the  public  interest.  959  Our  options  at  this  stage  are  to  approve  the  application  without  conditions,  approve  it  with  conditions,  or  hold  a  hearing  if  we  are 
 unable  to  make  the  findings  required  for  approval.  960  The  Application  and  the  substantial  record  before  us  make  clear  that,  on  balance,  the  public  interest  will  be  served  by  approval  of  the  application  as 
 amended  by  the  conditions  that  we  impose  herein. 
 359.  The  proposed  transaction  would  combine  News  Corp.,  a  major  supplier  of,  inter  alia,  video  programming,  including  one  of  four  national  broadcast  networks,  35  owned  and  operated  local 


 broadcast  television  stations  as  well  as  various  cable  programming  program  networks,  with  Direct  TV,  the  second  largest  MVPD  and  one  of  the  two  incumbent  nationwide  DBS  providers.  Integration  of 
 programming  with  distribution  is  not  new  in  the  media  industry.  Broadcasters,  cable  operators  and  DBS  providers  are  all  permitted  to  own  programming  assets,  although  the  terms  and  conditions  of  the  sale  of 
 vertically  integrated  satellite  cable  programming  to  rival  distribution  networks  is  subject  to  certain  rules  to  ensure  that  vertical  integration  does  not  cause  anticompetitive  outcomes.  961 


 360.  The  potential  harms  of  the  combination  of  News  Corp.  and  Hughes  assets  are  in  many  respects  those  inherent  in  such  supplier/  distributor  integration,  and  in  balancing  the  potential  public 
 interest  harms  and  benefits,  we  take  into  account  how  such  potential  harms  have  been  dealt  with  in  related  contexts.  On  the  one  hand,  certain  of  the  potential  competitive  harms  inherent  in  vertically  integrated 
 programming/  MVPD  providers  have  been  recognized  as  requiring  special  remedies  to  prevent  potential  abuses.  On  the  other  hand,  the  remedies  chosen,  at  least  in  recent  years,  have  not  generally  been 
 structural  remedies,  such  as  prohibitions  on  common  ownership  of  programming  and  distribution  assets,  but  behavioral  remedies,  such  as  requirements  for  program  access  and  nondiscrimination.  962  This  choice 
 reflects  the  general  recognition  that  vertical  integration  is  less  likely  than  horizontal  integration  to  have 


 957  See  47  U.  S.  C.    310(  d),  309(  a)&(  d). 
 958  See,  e.  g.,  AT&  T-  Comcast  Order,  17  FCC  Rcd  at  23255    26;  EchoStar-  DirecTV  Order,  17  FCC  Rcd  at  205784 
   25. 
 959  See  id. 


 960  If  we  are  unable  to  find  that  the  proposed  transaction  serves  the  public  interest  for  any  reason,  or  if  the  record 
 presents  a  substantial  and  material  question  of  fact,  Section  309(  e)  of  the  Act  requires  that  we  designate  the  application  for  hearing.  47  U.  S.  C.  309(  e). 


 961  See,  e.  g.,  Section  628  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    548. 
 962  See,  e.  g.,  47  C.  F.  R.    76.100,  et  seq.;  Implementation  of  the  Cable  Television  Consumer  Protection  and 
 Competition  Act  of  1992,  Development  of  Competition  and  Diversity  in  Video  Programming  Distribution:  Section  628(  c)(  5)  of  the  Communications  Act,  17  FCC  Rcd  12124  (2002). 
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 anticompetitive  effects  and  is  more  likely  to  promote  efficiency.  963 
 361.  There  are,  of  course,  obvious  differences  among  broadcast  television,  cable,  and  direct  broadcast  satellite  distribution  systems.  Full-  CONUS  direct  broadcast  satellite  distribution  systems,  such 


 as  DirecTVs,  are  both  multichannel  and  nationwide  in  scope,  and  this  transaction  will  result  in  an  unprecedented  level  of  integration  of  both  broadcast  and  cable  programming  assets  with  an  incumbent 
 nationwide  DBS  provider.  At  the  same  time,  while  the  two  primary  incumbent  DBS  competitors  have  attracted  enough  subscribers  nationwide  to  rank  them  among  the  largest  MVPDs,  they  rank  far  behind 
 cable  operators  in  most  local  markets,  including  all  the  most  populous  urban  areas.  964  Cable  remains  the  predominant  provider  of  MVPD  services  in  these  markets. 


 362.  We  must  choose  the  action  on  the  pending  application  that  will  serve  the  public  interest  with  due  attention  to  the  context  and  structure  of  the  current  marketplace.  Our  primary  objective  is  to 
 promote  the  interest  of  the  consumer  of  video  programming  to  maximize  the  variety,  quality  and  innovation  of  available  programming  and  minimize  its  price  where  possible.  The  mechanism  of  choice  to 
 achieve  this  goal  is  generally  to  encourage  a  competitive  marketplace. 
 363.  The  proposed  transaction  will  shift  control  of  one  of  the  two  incumbent  full-  CONUS  DBS  providers  from  a  non-  media  owner  who  has  made  no  secret  of  its  desire  to  exit  the  business  in  recent 


 years  to  a  media  company  that  has  a  proven  record  of  innovation  and  success  in  providing  satellite  television  services  (and,  incidentally,  competing  with  cable  distribution  systems)  in  other  markets 
 throughout  the  world.  As  indicated  above,  we  find  that  the  potential  improvement  in  DirecTVs  service  offerings  under  News  Corp.  s  innovative  and  aggressively  competitive  management,  while  inherently 
 difficult  to  quantify  precisely,  would  be  a  major  public  interest  benefit.  Another  tangible  benefit  that  we  can  ensure  will  be  realized  is  News  Corp.  s  commitment  to  achieve  the  important  public  interest  benefit 
 of  increased  local  channel  service  offerings  to  all  regions  of  the  country. 
 364.  Based  on  our  review  of  the  record,  we  have  found  that  where  Applicants  lack  market  power,  such  as  in  the  programming-  related  technologies  and  fixed  satellite  services  markets,  no  potential 


 public  interest  harms  will  arise.  965  At  the  same  time,  we  also  have  found  that  the  proposed  transaction  would  create  the  potential  for  competitive  and  other  public  interest  harms  in  areas  in  which  the  Applicants 
 have  market  power  and  the  transaction  would  increase  their  incentive  and  ability  to  exercise  that  market  power  to  the  detriment  of  the  public.  We  reiterate  that  because  local  MVPD  markets  already  are  highly 
 concentrated,  966  changes  in  vertical  relationships  between  a  major  input  and  output  supplier  in  such  a  market  can  have  significant  competitive  effects. 


 365.  Applicants  themselves  have  suggested  conditions,  analogous  to  those  applicable  to  vertically  integrated  cable  companies,  to  mitigate  potential  harms.  We  accept  these  proposed  conditions 
 as  sufficient,  together  with  our  existing  program  access  rules,  to  protect  against  any  potential  competitive  harms  with  respect  to  ensuring  non-  discriminatory  access  to  the  DirecTV  platform  for  unaffiliated 


 963  See  para.  155,  note  458,  and  para.  353,  supra. 
 964  See  2002  Video  Competition  Report,  17  FCC  Rcd  at  26903    4-  7,  26929-  31    58-  60. 
 965  See  Sections  VI.  C.  4.  d  (Electronic  Programming  Guides  and  Interactive  Television  Markets)  and  VI.  C.  4.  e 
 (Fixed  Satellite  Services),  supra. 
 966  EchoStar-  DirecTV  HDO,  17  FCC  Rcd  at  20616    139. 
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 programming  providers  and  for  ensuring  non-  discriminatory  access  to  national  and  non-  sports  regional  programming  for  rival  MVPDs.  Consequently,  we  impose  no  additional  remedial  actions  with  respect  to 
 these  video  programming  products  beyond  those  offered  by  the  Applicants. 
 366.  In  contrast,  based  on  our  review  of  the  record,  we  find  substantial  evidence  that  competitive  and  consumer  harms  would  likely  result  from  the  increase  in  News  Corp.  s  ability  to  leverage 


 its  market  power  with  respect  to  both  regional  sports  networks  and  local  broadcast  television  once  it  acquires  control  of  DirecTV.  The  record  indicates  that  temporary  withdrawal  of  regional  sports 
 programming  networks  and  local  broadcast  television  station  signals  during  disputed  carriage  negotiations  will  cause  a  significant  number  of  customers  to  shift  from  their  current  MVPD,  which  is  subject  to  the 
 foreclosure,  to  DirecTV.  In  addition,  there  is  significant  evidence  in  the  record  that  the  per-  subscriber  profits  generated  by  each  additional  DirecTV  subscriber  are  sufficiently  large  that  the  increased 
 downstream  revenues  resulting  from  temporary  foreclosure  are  likely  to  exceed  the  costs  of  foreclosure  in  many  local  markets.  Accordingly,  we  find  that,  as  a  result  of  the  transaction,  the  increased  profits 
 accruing  to  DirecTV  and  News  Corp.  as  a  result  of  the  temporary  withdrawal  of  regional  sports  programming  and  broadcast  signals  will  give  News  Corp.  an  increased  incentive  to  adopt  a  strategy  of 
 temporary  foreclosure  in  order  to  uniformly  raise  the  price  of  its  broadcast  television  and  regional  sports  programming  and/  or  obtain  other  carriage  concessions.  News  Corp.  s  post-  transaction  ability  to  act  anti-competitively 
 to  increase  its  competitors  programming  costs  is  greater  than  it  would  otherwise  be  due  to  News  Corp.  s  post-  transaction  ability  to  off-  set  temporary  revenue  losses  arising  from  foreclosure  with 
 increased  profits  accruing  to  DirecTV  as  subscribers  drop  the  affected  MVPD  and  subscribe  to  News  Corps  affiliated  MVPD.  This  increased  ability  and  incentive  to  seek  and  obtain  higher  programming 
 prices  and/  or  obtain  other  carriage  concessions  through  temporary  foreclosure  would  likely  lead  to  higher  prices  to  MVPD  consumers  and  thereby  harm  the  public  interest.  To  avoid  public  interest  harms  that 
 would  result  from  such  conduct,  we  impose  several  conditions  to  maintain  the  balance  of  bargaining  power  between  News  Corp.  and  other  MVPDs  at  roughly  pre-  transaction  levels. 


 367.  In  addition,  we  have  found  that  the  increase  in  News  Corp.  s  market  power  with  respect  to  its  RSN  and  local  broadcast  station  programming  would  likely,  if  not  checked,  permit  News  Corp.  to 
 inflict  additional  collateral  damage  on  rival  MVPDs.  For  example,  the  incremental  increase  in  News  Corp.  s  market  power  resulting  from  its  acquisition  of  control  of  DirecTV  could  be  used  to  force  MVPDs 
 to  carry  or  use  technologies  such  as  its  electronic  and  interactive  programming  guides  as  conditions  of  accessing  its  must  have  programming.  We  also  found  that  this  same  potential  for  increased  use  of 
 temporary  foreclosure  would  reduce  program  diversity  on  a  short  term  basis  because  consumers  lack  access  to  the  foreclosed  programming  and  that,  in  the  long  run,  the  increased  costs  paid  by  MVPDs  to 
 News  Corp.  would  also  likely  reduce  program  diversity  because  absent  these  increased  costs,  the  MVPD  might  have  elected  to  carry  a  new  niche  network  that  would  have  expanded  the  types  of  programming 
 available  to  its  subscribers.  We  made  similar  findings  with  respect  to  the  impact  of  the  transaction  on  viewpoint  diversity. 


 368.  To  mitigate  the  increased  market  power  the  transaction  provides  to  News  Corp.  with  respect  to  carriage  negotiations  for  RSN  and  local  broadcast  station  signals,  we  impose  the  additional 
 conditions  described  above  and  set  forth  in  Appendix  F  below.  With  respect  to  local  television  broadcast  stations  on  whose  behalf  News  Corp.  negotiates  retransmission  consent,  we  extend  the  good  faith  and 
 exclusivity  requirements  of  SHVIA  beyond  their  scheduled  sunset  date  to  run  concurrently  with  the  program  access  rules  applicable  to  satellite  cable  programming.  In  addition,  we  extend  News  Corp.  s 
 proposed  non-  discrimination  safeguards  to  its  broadcast  programming,  so  that  News  Corp.  must  make  its  programming  subject  to  retransmission  consent  available  to  all  MVPDs  on  a  non-  discriminatory  basis. 
 To  deter  the  more  frequent  use  of  temporary  foreclosure  strategies  following  News  Corp.  s  acquisition  of  control  of  DirecTV,  the  principal  harm  associated  with  vertical  integration  identified  in  the  record,  we 
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 direct  News  Corp.  to  submit  carriage  disputes  over  RSNs  and  local  broadcast  stations,  at  an  MVPDs  request,  to  commercial  arbitration.  Our  commercial  arbitration  remedy  is  intended  to  provide  a  neutral 
 backstop  mechanism  for  the  MVPD  if  commercial  negotiations  fail  to  produce  a  carriage  agreement  that  is  mutually  satisfactory  to  News  Corp.  and  the  MVPD.  Under  our  condition,  an  MVPD  purchasing  News 
 Corp.  RSN  programming  or  negotiating  a  retransmission  consent  agreement  may  elect  to  send  its  dispute  to  commercial  arbitration  with  a  right  of  appeal  to  the  Commission.  In  connection  with  the  election  of 
 arbitration,  we  limit  the  power  of  News  Corp.  to  withdraw  its  broadcast  and  RSN  networks  pending  resolution  of  the  carriage  dispute  by  the  arbitrator.  In  addition,  cable  operators  with  fewer  than  5000 
 subscribers,  for  whom  arbitration  would  be  unreasonably  expensive,  are  given  special  relief  with  respect  to  retransmission  consent,  and  those  with  fewer  than  400,000  subscribers  are  permitted  to  bargain 
 collectively  and  collectively  avail  themselves  of  the  arbitration  remedy  for  both  RSN  and  broadcast  programming. 


 369.  In  assessing  the  potential  harms  and  benefits  of  the  proposed  transaction,  we  note  that  the  major  benefit  improved  service  offerings  under  News  Corp.  s  innovative  and  aggressive  management 
 while  adequately  supported  under  the  rather  unique  circumstances  of  this  case,  is  inherently  difficult  to  quantify.  Other  claimed  benefits,  such  as  merger-  related  efficiencies,  that  are  not  so  difficult  to  quantify 
 have  not  been  adequately  supported  by  Applicants  on  the  record  here.  Finally,  consistent  with  our  commitment  to  localism  and  as  a  tangible  confirmation  of  the  benefits  of  the  proposed  transaction,  we 
 adopt,  as  a  condition  of  our  approval,  the  requirement  that,  by  year  end  2004,  DirecTV  will  offer  local  channel  service  in  an  additional  30  DMAs. 


 370.  With  these  conditions  to  mitigate  the  potential  harms  and  confirm  the  potential  benefits,  a  fair  and  balanced  assessment  of  the  proposed  transaction  demonstrates  that  News  Corp.  s  acquisition  of  a 
 controlling  interest  in  Hughes  will,  as  required  by  the  Communications  Act,  serve  the  public  interest,  convenience,  and  necessity.  967 


 X.  CONCLUSION 
 371.  We  conclude  that  the  positive  public  interest  benefits  promised  by  this  transaction  are  sufficient  to  support  the  Commissions  approval  of  GMs,  Hughes,  and  News  Corp.  s  Application,  under 


 the  public  interest  balancing  test  of  section  310(  d)  of  the  Communications  Act,  subject  to  the  conditions  specified  in  this  Order. 


 XI.  ORDERING  CLAUSES 
 372.  Accordingly,  having  reviewed  the  Application  and  the  record  in  this  matter,  IT  IS  ORDERED,  pursuant  to  Sections  4(  i)  and  (j),  214(  a),  214(  c),  309,  and  310(  d)  of  the  Communications  Act 


 of  1934,  as  amended,  47  U.  S.  C.    154(  i),  154(  j),  214(  a),  214(  c),  309,  310(  d),  that  the  application  for  consent  to  transfer  control  to  The  News  Corporation  Ltd.,  News  Publishing  Australia  Limited,  and  Fox 
 Entertainment  Group,  Inc.,  various  Commission  authorizations  as  set  forth  in  Appendix  G,  including  DBS  and  fixed  satellite  space  station  authorizations,  earth  station  authorizations,  and  other  related 
 authorizations,  held  by  wholly-  or  majority-  owned  subsidiaries  of  General  Motors  Corporation  and  Hughes  Electronics  Corporation  IS  GRANTED  subject  to  the  conditions  stated  below. 


 967  See  47  U.  S.  C.    309(  a)  and  310(  d). 
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 373.  IT  IS  FURTHER  ORDERED  that  as  a  condition  of  this  grant  The  News  Corporation  Ltd.,  its  wholly-  and  majority-  owned  subsidiaries,  and  Hughes  Electronics  Corporation  shall  comply  with 
 the  conditions  set  forth  in  Appendix  F  of  this  Order. 
 374.  IT  IS  FURTHER  ORDERED  that,  pursuant  to  sections  4(  i)  and  (j),  309  and  310(  b)  and  (d)  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i)  and  (j),  309,  310(  b)  and  (d), 


 that  the  Petition  to  Adopt  Conditions  to  Authorization  and  Licenses  filed  by  the  U.  S.  Department  of  Justice  and  Federal  Bureau  of  Investigation,  on  November  25,  2003,  IS  GRANTED,  and  that  the 
 authorizations  and  licenses  related  thereto  which  are  to  be  assigned  or  transferred  as  a  result  of  this  Order  are  subject  to  compliance  with  provisions  of  the  Agreement  between  General  Motors  Corporation, 
 Hughes  Electronics  Corporation,  and  The  News  Corporation  Limited  on  the  one  hand,  and  the  U.  S.  Department  of  Justice  and  the  Federal  Bureau  of  Investigation  on  the  other,  as  further  set  forth  in 
 Paragraph  38  and  Appendix  E  of  this  Order,  which  Agreement  is  designed  to  address  the  national  security,  law  enforcement,  and  public  safety  concerns  of  the  U.  S.  Department  of  Justice  and  the  Federal 
 Bureau  of  Investigation  regarding  the  authority  granted  herein,  is  fully  binding  upon  General  Motors  Corporation,  Hughes  Electronics  Corporation,  and  The  News  Corporation  Limited  and  those  subsidiaries, 
 successors  and  assigns  of  both  companies  that  provide  telecommunications  services  within  the  United  States.  Nothing  in  the  Agreement  is  intended  to  limit  any  obligation  imposed  by  Federal  law  or 
 regulation. 
 375.  IT  IS  FURTHER  ORDERED,  pursuant  to  Sections  4(  i)  and  (j),  214(  a),  214(  c),  309,  and  310(  d)  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i),  154(  j),  214(  a),  214(  c),  309, 


 310(  d),  that  the  Petitions  to  Deny  filed  by  EchoStar  Corporation,  Center  for  Digital  Democracy,  and  National  Hispanic  Media  Coalition  and  all  similar  petitions  ARE  DENIED. 


 376.  IT  IS  FURTHER  ORDERED  that  the  Petition  to  Condition  the  Transfer  of  Control  filed  by  Wyser-  Pratte  Management  Co.,  Inc.,  and  the  Petition  to  Designate  the  Application  for  Hearing  filed  by 
 National  Rural  Telecommunications  Cooperative  ARE  DENIED. 
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 377.  IT  IS  FURTHER  ORDERED  that  this  Memorandum  Opinion  and  Order  SHALL  BE  EFFECTIVE  on  December  19,  2003,  968  in  accordance  with  Section  1.103  of  the  Commission's  rules,  47 
 C.  F.  R.    1.103. 
 FEDERAL  COMMUNICATIONS  COMMISSION 


 Marlene  H.  Dortch  Secretary 


 968  On  December  19,  2003,  the  Commission  released  a  public  notice  announcing  the  Commissions  adoption  of 
 this  Order.  Public  Notice,  Subject  to  Conditions,  Commission  Approves  Transaction  Between  General  Motors  Corporation,  Hughes  Electronics  Corporation  and  The  News  Corporation  Limited,  FCC  03-  328  (rel.  Dec.  19, 


 2003). 
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 APPENDIX  A 
 LIST  OF  COMMENTERS 
 Petitions  To  Deny 
 Center  for  Digital  Democracy  (  CDD)  EchoStar  Satellite  Corporation  (  EchoStar) 
 National  Hispanic  Media  Coalition  (  NHMC)  National  Rural  Telecommunications  Cooperative  (  NRTC) 


 Initial  Comments 
 Advance/  Newhouse  Communications,  Cable  One,  Cox  Communications  &  Insight  Communications  (  JCC) 
 American  Cable  Association  (  ACA)  Association  of  Public  Television  Stations  and  the  Public  Broadcasting  Service  (  APTS) 
 Cablevision  Systems  Corporation  (  Cablevision)  Intelsat  Global  Service  Corporation  (  Intelsat) 
 Johnson  Broadcasting  of  Dallas,  Inc.  (  Johnson)  Maranatha  Broadcasting  Company,  Inc.  (  Maranatha) 
 Microcom  (  Microcom)  National  Association  of  Broadcasters  (  NAB) 
 RCN  Telecom  Services,  Inc.  (  RCN) 
 Opposition  and  Reply  Comments 
 General  Motors,  Hughes  Electronics  Corporation  and  The  News  Corporation  Limited  (  Applicants) 
 Reply  Comments 
 Advance/  Newhouse  Communications,  Cable  One,  Cox  Communications  &  Insight  Communications  (  JCC) 
 American  Cable  Association  (  ACA)  Cablevision  Systems  Corporation  (  Cablevision) 
 Consumer  Federation  of  America,  Consumers  Union,  Center  for  Digital  Democracy  &  Media  Access  Project  (  CFA) 
 Maranatha  Broadcasting  Company,  Inc.  (  Maranatha)  (late-  filed)  National  Hispanic  Media  Coalition  (  NHMC)  (late-  filed) 
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 APPENDIX  B 
 MODIFICATIONS  TO  RULES  FOR  ARBITRATION  INVOLVING  REGIONAL  SPORTS  NETWORKS 


 1.  We  modify  the  Rules  in  several  respects  as  they  apply  to  arbitration  involving  regional  sports  networks. 
 2.  Initiation  of  Arbitration.  Arbitration  shall  be  initiated  as  provided  in  Rule  R-  4  except  that,  under  Rule  R-  4  (a)  (ii)  the  MVPD  shall  not  be  required  to  submit  copies  of  the  arbitration 
 provisions  of  the  contract,  but  shall  instead  refer  to  this  Order  in  the  demand  for  arbitration.  Such  reference  shall  be  sufficient  for  the  AAA  to  take  jurisdiction. 


 3.  Appointment  of  the  Arbitrator.  Appointment  of  an  arbitrator  shall  be  in  accordance  with  rule  E-  4  of  the  Rules.  Arbitrators  included  on  the  list  referred  to  in  rule  E-  4  (a)  of  the  Rules  shall  be 
 selected  from  a  panel  jointly  developed  by  the  American  Arbitration  Association  and  the  Commission  and  will  be  based  on  the  following  criteria: 


 The  arbitrator  shall  be  a  lawyer  admitted  to  the  bar  of  a  state  of  the  United  States; 
 The  arbitrator  shall  have  been  practicing  law  for  at  least  10  years; 
 The  arbitrator  shall  have  prior  experience  in  mediating  or  arbitrating  disputes  concerning  media  programming  contracts; 


 The  arbitrator  shall  have  negotiated  or  have  knowledge  of  the  terms  of  comparable  cable  programming  network  contracts. 
 4.  Exchange  of  Information.  At  the  request  of  any  party,  or  at  the  discretion  of  the  arbitrator,  the  arbitrator  may  direct  the  production  of  current  and  previous  contracts  between  either  of  the 
 parties  and  MVPDs,  broadcast  stations,  video  programming  networks,  and  sports  teams,  leagues,  and  organizations  as  well  as  any  additional  information  that  is  considered  relevant  in  determining  the  value 
 of  the  programming  to  the  parties.  Parties  may  request  that  access  to  information  of  a  commercially  sensitive  nature  be  restricted  to  the  arbitrator  and  outside  counsel  and  experts  of  the  opposing  party. 


 5.  Administrative  Fees  and  Expenses.  If  the  arbitrator  finds  that  one  parties  conduct,  during  the  course  of  the  arbitration,  has  been  unreasonable,  the  arbitrator  may  assess  all  or  a  portion  of 
 the  other  parties  costs  and  expenses  (including  reasonable  attorneys  fees)  against  the  offending  party. 
 6.  Locale.  In  the  absence  of  agreement  between  the  parties,  the  arbitration  shall  be  held  in  the  city  that  contains  the  headquarters  of  the  MVPD. 


 7.  Form  of  Award.  The  arbitrator  shall  render  a  written  award  containing  the  arbitrator's  findings  of  fact  and  reasons  supporting  the  award.  If  the  award  contains  confidential  information,  the 
 arbitrator  shall  compile  two  versions  of  the  award;  one  containing  the  confidential  information  and  one  with  such  information  redacted.  The  version  of  the  award  containing  the  confidential  information  shall 
 only  be  disclosed  to  persons  bound  by  the  Protective  Order  issued  in  connection  with  the  arbitration.  The  parties  shall  include  such  confidential  version  in  the  record  of  any  review  of  the  arbitrators  decision 
 by  the  Commission. 
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 APPENDIX  C 
 MODIFICATIONS  TO  RULES  FOR  ARBITRATION  INVOLVING  RETRANSMISSION  CONSENT 


 1.  We  modify  the  Rules  in  several  respects  as  they  apply  to  arbitration  over  retransmission  consent. 
 2.  Initiation  of  Arbitration.  Arbitration  shall  be  initiated  as  provided  in  Rule  R-  4  except  that,  under  Rule  R-  4  (a)  (ii)  the  MVPD  shall  not  be  required  to  submit  copies  of  the  arbitration 
 provisions  of  the  contract,  but  shall  instead  refer  to  this  Order  in  the  demand  for  arbitration.  Such  reference  shall  be  sufficient  for  the  AAA  to  take  jurisdiction 


 3.  Appointment  of  the  Arbitrator.  Appointment  of  an  arbitrator  shall  be  in  accordance  with  rule  E-  4  of  the  Rules.  Arbitrators  included  on  the  list  referred  to  in  rule  E-  4  (a)  of  the  Rules  shall  be 
 selected  from  a  panel  jointly  developed  by  the  American  Arbitration  Association  and  the  Commission  and  will  be  based  on  the  following  criteria: 


 a.  The  arbitrator  shall  be  a  lawyer  admitted  to  the  bar  of  a  state  of  the  United  States; 
 b.  The  arbitrator  shall  have  been  practicing  law  for  at  least  10  years; 
 c.  The  arbitrator  shall  have  prior  experience  in  mediating  or  arbitrating  disputes  concerning  media  programming  contracts; 


 d.  The  arbitrator  shall  have  negotiated  or  have  knowledge  of  the  terms  of  retransmission  contracts. 
 4.  Exchange  of  Information.  At  the  request  of  any  party,  or  at  the  discretion  of  the  arbitrator,  the  arbitrator  may  direct  the  production  of  current  and  previous  contracts  between  either  of  the 
 parties  and  MVPDs  and  broadcast  stations  as  well  as  any  additional  information  that  is  considered  relevant  in  determining  the  value  of  the  programming  to  the  parties.  Parties  may  request  that  access  to 
 information  of  a  commercially  sensitive  nature  be  restricted  to  the  arbitrator  and  outside  counsel  and  experts  of  the  opposing  party. 


 5.  Administrative  Fees  and  Expenses.  If  the  arbitrator  finds  that  one  parties  conduct,  during  the  course  of  the  arbitration,  has  been  unreasonable,  the  arbitrator  may  assess  all  or  a  portion  of 
 the  other  parties  costs  and  expenses  (including  reasonable  attorneys  fees)  against  the  offending  party. 
 6.  Locale.  In  the  absence  of  agreement  between  the  parties,  the  arbitration  shall  be  held  in  the  city  that  contains  the  headquarters  of  the  MVPD. 


 7.  Form  of  Award.  The  arbitrator  shall  render  a  written  award  containing  the  arbitrator's  findings  of  fact  and  reasons  supporting  the  award.  If  the  award  contains  confidential  information,  the 
 arbitrator  shall  compile  two  versions  of  the  award;  one  containing  the  confidential  information  and  one  with  such  information  redacted.  The  version  of  the  award  containing  the  confidential  information  shall 
 only  be  disclosed  to  persons  bound  by  the  Protective  Order  issued  in  connection  with  the  arbitration.  The  parties  shall  include  such  confidential  version  in  the  record  of  any  review  of  the  arbitrators  decision 
 by  the  Commission. 
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 APPENDIX  D 
 TECHNICAL  APPENDIX 
 I.  STAFF  ANALYSIS  OF  THE  LIKELIHOOD  OF  FORECLOSURE  IN  THE  BROADCAST  TELEVISION  PROGRAMMING  MARKET 


 1.  The  two  primary  scenarios  of  competitive  harm  that  have  been  alleged  are:  (1)  permanent  foreclosure,  where  the  broadcast  signal  is  permanently  removed  from  rival  MVPDs  and  (2)  temporary 
 foreclosure,  where  the  broadcast  signal  is  removed  for  a  brief  period,  possibly  during  the  negotiations  for  retransmission  consent.  We  first  analyze  the  allegations  that  following  the  transaction  Applicants  will 
 have  an  incentive  to  permanently  withhold  consent  to  retransmit  the  local  broadcast  signal  from  rival  MVPDs.  While  Cablevision  and  JCC  believe  that  temporary  foreclosure  is  much  more  likely  in  this 
 situation,  1  other  commenters  argue  that  permanent  foreclosure  is  also  a  legitimate  concern.  2  Our  analysis  is  similar  for  both  forms  of  the  alleged  harm.  We  determine  the  number  of  consumers  that  must  switch 
 to  DirecTV  to  compensate  News  Corp.  for  the  loss  in  revenue  that  occurs  when  the  signal  is  removed  from  rival  MVPDs.  We  refer  to  this  as  the  critical  value.  If  more  than  this  number  of  customers  are 
 likely  to  switch  to  DirecTV  following  the  withdrawal  of  the  local  broadcast  signal,  then  News  Corp.  would  find  it  profitable  to  withhold  the  local  broadcast  signal  from  a  rival  MVPD. 


 A.  Permanent  Withdrawal  of  the  Broadcast  Signal  from  Rival  MVPDs 
 2.  Concerned  parties  in  this  proceeding  have  alleged  that  the  transaction  will  give  News  Corp.  an  increased  incentive  and  ability  to  profitably  withhold  consent  to  retransmit  broadcast  television 


 signals  from  rival  MVPDs.  3  Applicants  argue  that  permanently  withholding  the  right  to  retransmit  the  signals  of  News  Corp.  owned  and  operated  (  O&  O)  broadcast  television  stations  would  not  be 
 profitable  given  the  likely  reactions  of  consumers.  4  Applicants  estimate  that  DirecTV  would  need  to  increase  its  market  share  from  13%  to  between  44%  and  53%,  depending  on  the  assumptions  used.  5  We 
 analyze  the  incentives  to  engage  in  permanent  withdrawal  of  the  broadcast  signal  from  rival  MVPDs  weighing  the  arguments  of  the  parties  over  the  various  methods  and  assumptions  used  in  the  analysis.  6 
 In  addition  to  analyzing  the  incentives  to  withhold  the  signals  of  News  Corp.  s  owned  and  operated  stations,  we  analyze  the  incentives  to  withhold  the  local  broadcast  signals  of  independently  owned 
 affiliates.  We  perform  this  calculation  because  evidence  in  the  record  indicates  that  [REDACTED].  7  We  begin  with  determining  the  loss  News  Corp.  will  suffer  if  it  permanently  removes  its  local  broadcast 
 signal  from  rival  MVPDs.  If  News  Corp.  removes  its  signal  from  rival  MVPDs  it  stands  to  lose  the 
 1  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  15;  Cablevision  Aug.  20  Ex  Parte,  Rubinfeld  Analysis  at  6. 
 2  EchoStar  Petition  at  14-  15;  ACA  Comments  at  10-  11. 
 3  Id. 
 4  Applicants  Reply  at  39. 
 5  Applicants  Reply,  CRA  Analysis,    71  and    73. 
 6  Many  of  the  values  used  in  analyzing  the  situation  of  temporary  withdrawal  are  also  used  in  analyzing  a  situation 
 of  permanent  withdrawal,  we  will  discuss  some  of  the  values  proposed  by  the  parties  for  use  in  the  analysis  of  temporary  withdrawal  as  they  arise  in  our  analysis  of  permanent  withdrawal. 


 7  [REDACTED]. 
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 processes,  15  and  Cablevision  offers  a  range  of  between  5%  and  10%  with  a  stated  preference  for  using  News  Corp.  s  weighted  average  cost  of  capital  of  8%.  16 
 4.  We  find  that  the  use  of  the  hurdle  rate  would  be  an  inappropriate  value  to  use  for  discounting  cash  flows.  The  hurdle  rate  is  the  rate  of  interest  in  a  capital  budgeting  study  that  a 
 proposed  project  must  exceed  before  it  can  be  regarded  as  worthy  of  consideration.  17  The  hurdle  rate  is  often  based  on  the  cost  of  capital  or  the  weighted  average  cost  of  capital,  adjusted  by  a  factor  to 
 represent  the  risk  characteristics  of  the  projects  under  consideration.  18  We  prefer  to  use  a  more  objective  measure  of  the  opportunity  cost  of  capital  to  the  firm  such  as  the  weighted  average  cost  of 
 capital.  19  However,  we  note  that  News  Corp.  s  weighted  average  cost  of  capital  is  unusually  low  when  compared  with  MVPDs.  20  We  will  use  10%  as  our  discount  rate,  this  is  a  reasonable  compromise 
 between  News  Corp.  s  weighted  average  cost  of  capital,  which  does  not  include  the  impact  of  MVPD  operations,  and  the  weighted  average  cost  of  capital  of  firms  in  the  MVPD  industry. 


 5.  The  previous  discussion  focused  on  determining  the  profit  margin  on  customers  serviced  by  DirecTV.  However,  not  all  customers  receiving  DirecTV  services  are  serviced  by  DirecTV;  some  are 
 serviced  by  the  National  Rural  Telecommunications  Cooperative  (NRTC).  Some  of  the  customers  that  shift  to  DirecTV  service  in  the  event  of  a  permanent  withdrawal  of  a  broadcast  station  signal  will  be 
 serviced  by  NRTC  rather  than  DirecTV.  DirecTV  earns  a  substantially  lower  margin  on  these  customers.  Applicants  estimate  that  this  value  is  less  than  [REDACTED]  per  NRTC  subscriber  per  month.  21 
 Absent  any  further  data,  we  will  use  this  value  as  the  profit  margin  on  DirecTV  customers  serviced  by  NRTC  in  our  analysis.  We  will  assume  that  the  customers  switching  to  DirecTV  after  a  permanent 
 withdrawal  will  be  serviced  by  DirecTV  and  NRTC  in  the  same  proportion  as  existing  customers  in  the  DMA. 


 6.  Before  performing  the  calculation  we  must  identify  reasonable  values  for  the  share  of  rival  MVPD  customers  that  will  use  over-  the-  air  reception  to  obtain  the  broadcast  signal.  Applicants,  in 
 their  analysis,  use  the  figure  of  33%.  22  Cablevision  assumes  values  of  33%  and  50%  and  JCC  use  the 
 15  Id. 


 16  Cablevision  Aug.  20  Ex  Parte,  Rubinfeld  Analysis  at  13.  Estimates  of  Fox  Entertainment  Groups  weighted 
 average  cost  of  capital  range  between  8.  8%  and  9.  7%.  JP  Morgan  Securities,  Media  &  Entertainment:  December  2002Quarterly  Review  and  Outlook,  Feb.  24,  2003  at  28;  Bank  of  America  Securities,  Entertainment  Industry 


 Overview,  July  2003  at  163. 
 17  A  Dictionary  of  Finance  and  Banking  2  nd  Edition,  Oxford  University  Press,  1997  at  167. 


 18  Id. 
 19  The  WACC  is  a  company  cost  of  capital.  Strictly  speaking,  it  works  only  for  projects  that  are  carbon  copies  of 
 the  firms  existing  assets,  in  both  business  risk  and  financing.  Often  it  is  used  as  a  companywide  benchmark  discount  rate;  the  benchmark  is  adjusted  upward  for  unusually  risky  projects  and  downward  for  unusually  safe 


 ones.  Richard  A.  Brealey  and  Stewart  C.  Myers,  Principles  of  Corporate  Finance,  5  th  Edition,  McGraw-  Hill,  1996  at  523. 


 20  See  for  example  Morgan  Stanley,  The  Copernicus  Theorem,  July  2,  2003  which  reports  weighted  average  costs 
 of  capital  for  the  major  firms  in  the  MVPD  industry  ranging  from  10.0%  to  11.25%. 
 21  Applicants  Reply,  CRA  Analysis  at  fn.  39. 


 22  Applicants  Reply,  CRA  Analysis    73. 
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 complete  range  of  possible  values.  23  No  one  has  presented  any  evidence  to  indicate  what  an  appropriate  value  should  be.  We  will  use  a  value  of  33%,  since  in  our  judgment  it  is  a  reasonable  approximation, 
 being  twice  the  fraction  of  television  households  that  currently  receive  video  programming  only  via  broadcast  reception.  24 


 7.  We  also  need  to  determine  the  allocation  of  the  additional  profits  that  would  be  generated  by  the  withholding  of  programming.  Applicants  have  suggested  the  use  of  two  different  figures:  34%, 
 representing  the  fraction  of  Hughes  Electronics  that  would  be  acquired  by  News  Corp.  pursuant  to  the  transaction  documents  as  well  as  50%,  representing  the  fraction  of  Hughes  that  News  Corp.  is  permitted 
 to  acquire  without  further  approval  by  Hughes  stockholders.  25  Cablevision  and  JCC  argue  that  a  value  of  100%  is  more  appropriate  and  would  be  consistent  with  joint  profit  maximization.  26  News  Corp.  counters 
 that  there  are  strong  checks  on  News  Corp.  s  ability  to  engage  in  self-  dealing,  including  an  independent  audit  committee.  27  Cablevision  and  JCC  argue  that  the  harms  being  analyzed  result  from  the  joint  profit 
 maximizing  behavior  of  both  firms  and  that  News  Corp.  and  DirecTV  would  simply  strike  a  bargain  that  maximized  their  joint  profits  and  then  distribute  the  gains  so  that  everyone  would  be  better  off.  28 
 We  reject  the  34%  value  since  the  new  Hughes  certificate  of  incorporation  allows  News  Corp.  to  acquire  up  to  50%  ownership  without  further  approval  by  Hughes  stockholders.  29  We  instead  analyze  the 
 transactions  effects  assuming  a  50%  division  of  the  additional  joint  profits  earned  through  the  withdrawal  of  programming,  as  well  as  100%.  We  analyze  the  worst-  case  scenario  where  News  Corp. 
 obtains  100%  of  the  additional  joint  profits  generated  by  a  foreclosure  strategy  for  several  reasons.  As  our  discussion  of  corporate  governance  has  pointed  out,  the  incentive  and  ability  of  DirecTVs  audit 
 committee  to  ensure  arms-  length  contracting  between  News  Corp.  and  DirecTV  is  limited.  30  In  addition,  we  note  that  any  split  of  the  additional  profits  in  excess  of  News  Corp.  s  ownership  share  would  not 
 make  Hughes  stockholders  worse  off.  This  is  because  any  DirecTV  profits  achieved  through  foreclosure  would  result  directly  from  the  actions  of  News  Corp.,  and  those  profits  would  not  otherwise  be  available 
 to  Hughes  stockholders.  The  proposed  joint  endeavors  between  News  Corp.  and  DirecTV  that  are  a  basis  for  many  of  the  Applicants  claimed  benefits  provide  ample  opportunities  to  compensate  News 
 Corp.  for  the  losses  in  programming  revenue  associated  with  foreclosure  and  make  the  strategy  profitable  for  both  firms  and  their  stockholders. 


 8.  Applicants  calculate  the  critical  value  based  on  the  average  advertising  revenues  of  all  News  Corp.  owned  and  operated  stations  as  well  as  average  market  shares  of  cable  and  DBS  in  the 
 United  States.  31  Applicants  find  that  on  average,  it  would  not  be  profitable  to  engage  in  permanent 
 23  Cablevision  Aug.  20  Ex  Parte,  Rubinfeld  Analysis  at  13;  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  54. 


 24  2002  Annual  Video  Competition  Report    4. 
 25  Applicants  Reply,  CRA  Analysis  at  52. 
 26  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  11;  Cablevision  Aug.  20  Ex  Parte,  Rubinfeld  Analysis  at  18. 
 27  Applicants  Reply,  CRA  Analysis  at  53. 
 28  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  11. 
 29  Hughes  Electronics  Corporation,  SEC  Form  S-  4,  June  5,  2003  at  26. 
 30  See  Section  IV.  C.  2. 
 31  Applicants  Reply,  CRA  Analysis    73. 
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 foreclosure.  We  find  this  analysis  incomplete  and  suffering  from  the  fallacy  of  division.  32  Accordingly,  we  will  calculate  the  critical  values  that  would  make  permanent  foreclosure  of  broadcast 
 stations  programming  at  the  smallest  geographic  level  possible.  Ideally  that  would  be  at  the  level  of  a  cable  franchise  within  a  Nielsen  Designated  Market  Area  (  DMA).  However,  we  do  not  have  reliable 
 figures  on  cable  subscribers  by  franchise  in  a  DMA.  We  do  have  estimates  of  the  cable  and  DirecTV  households  in  a  DMA.  33  Therefore  we  perform  our  calculations  at  the  DMA  level  and  assume  that  the 
 programming  is  withdrawn  from  all  competing  MVPDs  within  the  DMA.  We  find  this  a  reasonable  assumption  and  a  feasible  strategy  since  [REDACTED].  34 


 9.  Our  analysis  of  the  incentives  for  News  Corp.  to  permanently  withhold  retransmission  consent  of  broadcast  signals  from  rival  MVPDs  indicates  that  this  strategy  is  unlikely  to  be  profitable  to 
 News  Corp.  and  its  affiliates.  If  News  Corp.  could  claim  50%  of  joint  profits  of  a  withdrawal  strategy,  it  would  find  a  withdrawal  of  the  local  broadcast  station  from  rival  MVPDs  to  be  profitable  if,  depending 
 on  the  broadcast  station,  between  [REDACTED]  and  [REDACTED]  of  cable  customers  switched  to  a  DBS  provider.  If  News  Corp.  receives  100%  of  the  joint  profits  from  the  strategy,  the  percentage  of  rival 
 MVPD  customers  that  must  switch  to  make  temporary  foreclosure  profitable  is  between  [REDACTED]  and  [REDACTED]  for  the  various  local  broadcast  stations.  Table  A-  1  presents  the  percentage  of  all 
 rival  MVPD  subscribers  that  reside  in  areas  where  News  Corp.  would  find  it  profitable  to  permanently  withdraw  the  local  broadcast  signal.  This  value  will  depend  on  the  percent  of  rival  MVPD  subscribers 
 that  shift  in  response  to  the  removal  of  the  local  broadcast  station  from  their  chosen  MVPD.  We  hypothesize  a  range  of  values  from  [REDACTED]  to  [REDACTED].  If  we  can  expect  [REDACTED] 
 of  rival  MVPD  customers  to  defect  to  DirecTV  following  a  withdrawal  of  the  broadcast  station,  News  Corp.  would  find  the  withdrawal  a  profitable  endeavor  against  companies  serving  [REDACTED]  of  all 
 rival  MVPD  subscribers  if  News  Corp.  can  lay  claim  to  50%  of  the  additional  joint  profits.  If  News  Corp.  gains  100%  of  the  additional  joint  profits,  [REDACTED]  of  all  rival  MVPD  subscribers  would  be 
 at  risk  from  suffering  under  a  permanent  withdrawal  of  the  programming. 
 10.  Table  A-  1.  Percentage  of  Rival  MVPD  Subscribers  at  Risk  of  a  Permanent  Withdrawal  of  their  Local  Broadcast  Signal.[  REDACTED] 


 B.  Temporary  Withdrawal  of  the  Broadcast  Signal  from  Rival  MVPDs 
 11.  Commenters  raise  the  concern  that  the  more  likely  harm  to  rivals  will  occur  from  the  temporary  withdrawal  of  the  broadcast  signal  from  rival  MVPDs,  rather  than  permanent  withdrawal. 


 Cablevision  estimates  that  DirecTV  need  only  add  between  0.7  and  1.4  points  to  its  market  share  for  temporary  withholding  of  the  broadcast  signal  to  be  profitable.  35  Applicants  argue  that  using  more 


 32  The  fallacy  of  division  occurs  when  one  argues  that  what  is  true  for  the  whole  is  also  true  for  the  parts.  In  this 
 context,  News  Corp.  argues  that  since  it  would  not  be  profitable  to  permanently  withhold  retransmission  consent  of  all  of  its  owned  and  operated  stations,  it  would  also  be  true  that  it  is  not  profitable  to  withhold  consent  for  any 


 single  station. 
 33  DirecTV  July  30,  2003  Response  [REDACTED];  BIA  MasterAccess  Database  of  Television  Stations.  We 
 assume  that  the  number  of  subscribers  to  EchoStar  is  proportional  to  DirecTVs  share  in  the  DMA  in  the  same  proportion  as  the  two  firms  market  shares  nationally. 


 34  News  Corp.  July  28,  2003  Response  [REDACTED]. 
 35  Cablevision  Sept.  25  Ex  Parte,  Rubinfeld  Analysis  II  at  13. 
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 appropriate  assumptions,  DirecTV  would  need  to  increase  its  market  share  by  [REDACTED]  points.  36  In  our  analysis  of  the  incentives  to  engage  in  temporary  foreclosure,  we  build  upon  the  assumptions 
 evaluated  in  our  permanent  withholding  analysis,  and  examine  several  new  factors. 
 12.  The  possibility  of  temporary  foreclosure  presents  a  different  risk  of  competitive  harms.  Under  this  strategy,  News  Corp.  would  remove  its  broadcast  signal  from  rival  MVPDs  for  a  short  period 


 of  time,  thereby  limiting  the  loss  in  advertising  revenues  it  incurs.  JCC  point  out  that  this  withdrawal  benefits  Applicants  in  two  ways.  37  The  first  benefit  is  the  same  as  that  analyzed  under  the  hypothesis  of 
 permanent  foreclosure  where  the  additional  customers  switching  to  DirecTV  generate  profits  that  accrue  to  DirecTV  and  are  shared  with  News  Corp.  The  second  benefit  accrues  solely  to  News  Corp.  That 
 benefit  is  the  increased  compensation  for  retransmission  consent  that  News  Corp.  will  be  able  to  extract  from  MVPDs  due  to  the  reduction  in  the  costs  of  withholding  retransmission  consent  and  the  greater 
 credibility  that  the  threat  of  withholding  carries.  Our  analysis  of  the  incentives  to  temporarily  foreclose  the  local  broadcast  signals  from  rival  MVPDs  is  only  able  to  measure  the  effect  of  the  first  benefit,  the 
 additional  profits  that  are  earned  when  consumers  switch  to  DirecTV.  The  effect  of  the  increased  credibility  of  withholding  of  retransmission  on  the  compensation  for  retransmission  of  the  local 
 broadcast  stations  signal  is  difficult  to  quantify.  As  JCC  point  out,  the  effect  of  this  increased  credibility  can  have  a  substantial  effect  on  compensation,  even  when  the  profits  that  accrue  from  switching 
 subscribers  cannot  compensate  for  the  advertising  revenues  lost  due  to  foreclosure.  38  However,  the  extent  of  the  effect  depends  on  the  relative  strengths  of  the  bargaining  positions  of  News  Corp.  and 
 MVPDs.  There  is  no  evidence  in  the  record  regarding  the  relative  strengths  of  News  Corp.  and  MVPDs  in  this  area,  therefore  we  are  unable  to  estimate  the  full  magnitude  of  the  increase  in  the  incentive  and 
 ability  to  obtain  additional  compensation  in  return  for  granting  retransmission  consent.  Our  analysis  will  provide  an  estimate  of  increased  incentive  and  ability  that  is  likely  to  occur  due  to  the  additional  profit 
 News  Corp.  earns  when  consumers  switch  from  rival  MVPDs  to  DirecTV,  as  such  it  is  an  estimate  of  the  minimum  increase  in  incentive  and  ability  to  obtain  additional  compensation  from  MVPDs. 


 13.  Unlike  the  case  of  permanent  foreclosure,  with  temporary  foreclosure,  the  timing  of  the  various  effects  becomes  important.  Because  some  of  the  consumers  that  switch  to  DirecTV  will  return  to 
 their  previous  MVPD  after  the  period  of  withdrawal,  we  must  account  for  the  timing  of  the  subscriber  acquisition  costs  as  well  as  the  timing  of  consumers  return  to  their  original  MVPD.  We  adopt  a 
 discounted  cash  flow  approach  to  allow  us  to  compare  these  benefits  and  costs  over  time.  39  DirecTV  requires  that  customers  agree  to  purchase  12  months  of  programming  before  DirecTV  will  provide  free 
 or  subsidized  equipment  and  installation.  40  Because  [REDACTED],  we  assume  that  all  of  the  customers 


 36  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II    24. 
 37  JCC  Sept.  23  Ex  Parte,  Rogerson  Analysis  III  at  2. 
 38  JCC  Sept.  23  Ex  Parte,  Rogerson  Analysis  III  at  7-  9. 
 39  The  discounted  cash  flow  analysis  is  the  method  used  by  both  Cablevision  (Cablevision  Aug.  20  Ex  Parte, 
 Rubinfeld  Analysis)  and  Applicants  (Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II)  when  examining  the  incentives  to  engage  in  temporary  withholding  of  programming.  It  is  the  standard  method  for  comparing  flows  of 


 costs  and  benefits  that  vary  over  time.  See  for  example  Richard  A.  Brealey  and  Stewart  C.  Myers,  Principles  of  Corporate  Finance,  5  th  Edition,  McGraw-  Hill,  1996,  Chapter  3. 


 40  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II    12. 
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 that  switch  to  DirecTV  agree  to  purchase  twelve  months  of  programming.  41  After  that  period  of  time,  a  number  will  return  to  their  previous  MVPD.  Applicants  report  that  [REDACTED]  of  new  DirecTV 
 customers  drop  service  over  the  course  of  one  year.  42  They  believe  that  a  larger  fraction  of  the  customers  induced  to  switch  because  of  the  temporary  withholding  will  leave  and  consequently  assume  that 
 [REDACTED]  customers  will  leave  after  the  first  year.  43  Following  the  initial  churn  of  these  new  customers,  Applicants  assume  that  these  new  customers  will  exit  at  DirecTVs  average  churn  rate  of 
 [REDACTED]  per  month.  44  Cablevision  and  JCC  argue  that  customers  who  switched  to  DirecTV  due  to  the  temporary  withdrawal  are,  if  anything,  less  likely  to  churn  than  the  average  DirecTV  customer.  45 
 We  assume  this  initial  churn  rate  is  [REDACTED],  which  is  [REDACTED]  the  normal  12  month  churn  rate  of  DirecTV.  We  base  this  value  on  the  regression  analysis  described  later  in  this  appendix  where  we 
 analyze  the  impact  on  DirecTV  customer  disconnects  of  the  introduction  of  the  YES  cable  network  on  Cablevision  cable  systems  in  New  York,  which  signaled  the  return  of  New  York  Yankees  baseball  games 
 to  those  systems.  Our  analysis  also  indicates  that  [REDACTED].  Therefore,  following  the  initial  churn  of  these  new  customers,  we  assume  that  the  continuing  churn  rate  of  these  new  customers  will  be  equal 
 to  [REDACTED]  per  month. 
 14.  Cablevision  suggests  that  an  additional  adjustment  should  be  made  to  account  for  the  positive  impact  the  temporary  foreclosure  would  have  on  the  future  growth  rate  of  DirecTV.  46  We  reject 


 this  proposed  adjustment.  In  Section  I.  C  of  this  appendix  we  examine  the  effects  of  the  temporary  withdrawal  of  a  local  broadcast  station  signal  from  one  of  DirecTVs  competitors  and  [REDACTED]. 


 15.  With  these  assumptions,  as  well  as  those  discussed  in  analyzing  the  impact  of  permanent  withholding  of  the  local  broadcast  stations  signal,  the  losses  and  gains  from  a  temporary  foreclosure  can 
 be  calculated.  Applicants,  as  well  as  Cablevision,  propose  that  the  calculation  for  the  withholding  of  retransmission  rights  for  a  local  broadcast  station  be  based  upon  a  one  month  withholding.  47  We  will 
 adopt  this  assumption  as  well.  In  the  first  period  News  Corp.  will  suffer  the  loss  of  a  months  worth  of  advertising  revenue.  In  the  succeeding  month,  the  temporary  foreclosure  will  have  ended  and  News 
 Corp.  will  no  longer  suffer  the  loss  associated  with  it  and  is  assumed  to  earn  the  same  advertising  revenue  and  compensation  from  retransmission  consent  as  it  did  prior  to  the  withholding.  The  gain 
 experienced  by  News  Corp.  will  be  its  share  of  the  profit  margin  from  each  new  customer  that  arrives  from  a  rival  MVPD.  News  Corp.  also  will  be  assessed  its  share  of  the  one-  time  subscriber  acquisition 
 costs  associated  with  each  new  subscriber.  For  11  successive  months,  News  Corp.  will  earn  its  share  of  the  profit  margin  on  the  customers  that  shifted  due  to  the  temporary  foreclosure.  It  continues  to  receive 
 these  profits  because  these  customers,  in  order  to  receive  free  installation  and  equipment,  have  committed  to  purchase  12  months  of  DirecTV  programming.  However,  in  the  thirteenth  month,  when 
 the  new  customers  commitments  expire,  DirecTV  will  lose  [REDACTED]  of  the  customers  it  acquired 
 41  DirecTV  July  30,  2003  Response  [REDACTED]. 


 42  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II    15 
 43  Id. 
 44  Id. 
 45  JCC  Sept.  23  Ex  Parte,  Rogerson  Analysis  III  at  14;  Cablevision  Sept.  25  Ex  Parte,  Rubinfeld  Analysis  II  at  9. 
 46  Cablevision  Aug.  20  Ex  Parte,  Rubinfeld  Analysis  at  14. 
 47  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II    23;  Cablevision  Aug.  20  Ex  Parte,  Rubinfeld  Analysis  at  6. 
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 due  to  the  temporary  foreclosure.  In  each  continuing  month,  DirecTV  will  lose  [REDACTED]  of  the  remaining  customers.  Given  this  monthly  pattern  of  gains  and  losses,  we  discount  the  earnings  of  future 
 periods  using  a  discount  rate  of  10%.  We  calculate  the  number  of  rival  MVPD  customers  that  must  switch  to  DirecTV  for  the  one  month  withdrawal  to  be  profitable  to  News  Corp.  and  DirecTV  for  each 
 owned  and  operated  broadcast  station  as  well  as  independently  owned  affiliates  of  the  Fox  Broadcast  Network. 


 16.  Our  analysis  indicates  that  a  temporary  withdrawal  of  local  broadcast  signals  from  rival  MVPDs  is  a  credible  negotiating  tactic.  It  demonstrates  that  in  most  areas  of  the  country,  following  the 
 transaction,  News  Corp.  can  earn  additional  profits  based  on  the  consumers  that  switch  to  DirecTV  when  the  local  broadcast  signal  is  withheld  from  rival  MVPDs.  Rival  MVPDs  facing  this  situation  during 
 retransmission  consent  negotiations  will  have  two  choices,  either  give  News  Corp.  additional  considerations  for  retransmission  consent  or  have  News  Corp.  earn  those  additional  profits  through  the 
 mechanism  of  temporary  withholding.  If  News  Corp.  could  claim  50%  of  joint  profits  of  a  withdrawal  strategy,  it  would  find  a  withdrawal  of  the  local  broadcast  stations  signal  from  rival  MVPDs  to  be 
 profitable  if,  depending  on  the  broadcast  station,  between  [REDACTED]  and  [REDACTED]  of  cable  customers  switched  to  DirecTV.  If  News  Corp.  receives  100%  of  the  joint  profits  from  the  strategy,  the 
 percentage  of  rival  MVPD  customers  that  must  switch  to  make  temporary  foreclosure  profitable  is  between  [REDACTED]  and  [REDACTED]  for  the  various  broadcast  stations.  Table  A-  2  presents  the 
 percentage  of  rival  MVPD  subscribers  that  reside  in  areas  where  News  Corp.  would  find  it  profitable  to  temporarily  withhold  the  local  broadcast  signal.  This  value  depends  on  the  percent  of  subscribers  to  rival 
 MVPDs  that  shift  in  response  to  the  one  month  withdrawal  of  the  local  broadcast  station  from  their  MVPD.  We  examine  the  extent  of  the  profitability  of  temporary  withholding  for  a  range  of  values  of  the 
 consumer  response.  If  [REDACTED]  of  rival  MVPD  customers  defect  to  DirecTV  following  a  withdrawal  of  the  local  broadcast  station,  News  Corp.  would  find  the  withdrawal  profitable  in  areas  with 
 [REDACTED]  of  rival  MVPD  subscribers  if  News  Corp.  can  lay  claim  to  50%  of  the  joint  profits.  If  News  Corp.  gains  100%  of  the  joint  profits,  [REDACTED]  of  rival  MVPD  subscribers  are  at  risk  from 
 suffering  under  a  temporary  withdrawal  of  the  programming. 
 17.  Table  A-  2.  Percentage  of  Rival  MVPD  Subscribers  at  Risk  of  a  Temporary  Withdrawal  of  their  Local  Broadcast  Signal.[  REDACTED] 


 C.  Estimation  of  the  Impact  of  the  Withdrawal  of  a  Broadcast  Station  from  Rival  MVPDs  on  DirecTV 
 18.  The  preceding  analysis  of  the  incentives  to  either  permanently  or  temporarily  withhold  a  broadcast  signal  from  a  rival  MVPD  informs  us  about  the  necessary  responses  from  consumers  to  make 
 the  hypothesized  harms  real.  Cablevision  has  analyzed  the  results  of  a  retransmission  consent  dispute  between  Time  Warner  and  the  ABC  owned  and  operated  broadcast  television  station  in  Houston.  48 
 Based  on  their  early  analysis,  they  believe  that  as  many  as  3%  of  Time  Warners  subscribers  may  have  switched  to  DirecTV.  Subsequent  econometric  analysis  led  to  a  refinement  in  their  conclusion. 
 Cablevision  argues  that  DirecTV  [REDACTED]  of  MVPD  subscribers  in  the  Houston  DMA.  49 
 48  Cablevision  Aug.  20  Ex  Parte,  Rubinfeld  Analysis  at  3-  5. 
 49  Letter  from  Tara  Corvo,  ,  Mintz,  Levin,  Cohn,  Ferris,  Glovsky  and  Popeo,  PC,  to  Marlene  H.  Dortch,  Secretary, 
 FCC  (Nov.  20,  2003),  Daniel  L.  Rubinfeld  and  Duncan  Cameron,  Estimating  the  Effect  on  MVPD  Subscribership  of  the  May  2000  Withholding  of  ABC  Network  Retransmissions  from  Time  Warner  Houston  Cable  Subscribers  at 


 11. 
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 Applicants  argue  that  the  situation  in  Houston  is  not  relevant  since  it  involved  a  case  of  a  cable  company  removing  the  broadcast  signal  from  its  system  rather  than  a  broadcaster  withholding  the  signal  from  a 
 cable  company.  50  We  disagree  with  the  Applicants  position.  The  value  of  the  Houston  incident  is  not  in  determining  which  firm  found  it  more  advantageous  to  carry  through  on  the  removal  or  withholding  of 
 the  signal.  The  value  is  in  analyzing  how  Time  Warner  customers  reacted  when  the  signal  was  no  longer  available  on  the  cable  system.  To  that  extent,  Applicants  have  not  convinced  us  that  the  specific  details 
 in  Houston  bias  estimates  of  consumer  reactions  to  the  withdrawal  of  a  broadcast  signal  from  a  cable  system. 


 19.  We  approach  the  problem  from  the  standpoint  of  researchers  estimating  the  impact  of  a  policy.  We  obtain  data  from  two  separate  groups.  A  control  group  which  is  unaffected  by  the  policy  for 
 the  entire  period  under  observation,  and  a  treatment  group,  that  for  some  period  of  time  has  the  policy  applied  to  them.  In  the  case  at  hand,  the  policy  or  treatment  is  the  removal  of  the  ABC  affiliate  from  the 
 Time  Warner  cable  system.  Our  treatment  group  consists  of  those  ZIP  codes  within  the  Houston  DMA  that  where  Time  Warner  offers  service  to  at  least  75%  of  the  households.  For  our  control  group  we  use 
 those  ZIP  codes  within  the  Houston  DMA  where  Classic  Cable  or  Northwoods  Cable  offer  service  to  at  least  75%  of  the  households.  51  Both  firms  in  the  control  group  carried  the  ABC  affiliate  on  an 
 uninterrupted  basis  during  2000.  We  measure  the  effect  of  these  events  on  the  growth  rate  in  DirecTV  subscribers  for  each  month  between  December  1999  and  July  2000. 


 20.  We  use  an  econometric  method  known  as  fixed  effects  estimation.  52  This  method  estimates  DirecTVs  subscriber  growth  rate  in  a  ZIP  code  as  depending  on  a  ZIP  code-  specific  effect, 
 which  varies  across  ZIP  codes,  but  does  not  vary  over  time,  and  a  time-  specific  effect  which  varies  over  time,  but  is  the  same  across  all  ZIP  codes.  The  treatment  effect  is  measured  by  indicator  variables  for  the 
 Time  Warner  ZIP  codes  for  each  month  between  December  of  1999  and  July  of  2000.  These  indicator  variables  will  measure  the  difference  between  DirecTVs  growth  in  Time  Warner  ZIP  codes  and  in  the 
 Classic  and  Northwoods  ZIP  codes  after  accounting  for  the  factors  that  are  due  either  to  constant  characteristics  of  the  ZIP  code,  such  as  household  income,  population  density,  and  consumer 
 preferences,  or  effects  at  one  point  in  time  that  affect  both  sets  of  ZIP  codes  equally,  such  as  changes  in  DirecTV  programming. 


 21.  The  estimated  monthly  difference  in  DirecTVs  growth  rate  in  areas  served  by  Time  Warner  as  compared  to  the  control  group  that  was  not  in  a  retransmission  consent  dispute  is  given  in 
 table  A-  3.  The  results  indicate  a  statistically  significant  increase  in  the  growth  rate  of  DirecTV  in  the  ZIP  codes  where  consumers  were  continually  being  told  that  they  were  likely  to  be  losing  access  to  the 
 ABC  affiliate  on  the  incumbent  cable  operator.  53 


 50  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II    21-  22. 
 51  To  make  a  determination  of  which  ZIP  codes  and  the  fraction  of  households  that  fall  within  the  service  areas  of 
 the  firms  we  use  the  May  2003  GDT  Dynamap  2000  ZIP  code  boundaries,  3  rd  Quarter  2002  incumbent  cable  operator  service  territories  from  MediaPrints,  Warren  Communications  News  Inc.  and  The  Janus  Group,  and 


 2000  Census  Summary  File  1. 
 52  See  Jeffrey  Wooldridge,  Econometric  Analysis  of  Cross  Section  and  Panel  Data,  The  MIT  Press,  2002,  Chapter 
 10. 
 53  See  for  example,  Mike  McDaniel,  Picture  Looking  Dark  in  TV  Feud,  Channel  13  May  Go  Off  Cable  Tonight, 
 HOUSTON  CHRONICLE,  March  9,  2000. 
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 22.  Table  A-  3.  Additional  DirecTV  Subscriber  Growth  in  Houston  due  to  Retransmission  Consent  Dispute  between  ABC  and  Time  Warner.  [REDACTED] 
 23.  We  can  calculate  the  impact  of  the  warnings  and  actual  withdrawal  of  the  ABC  affiliate  from  Time  Warner  cable  systems  in  Houston  by  applying  the  excess  growth  rates  [REDACTED].  54 
 [REDACTED]  Therefore,  we  estimate  that  the  effect  on  DirecTV  of  the  withdrawal  of  broadcast  programming  from  the  rival  cable  operator  was  an  additional  [REDACTED]  subscribers.  We  estimate 
 that  because  of  the  39-  hour  withdrawal  of  the  ABC  affiliate  Time  Warner  lost  [REDACTED]  of  its  customer  base  to  DirecTV.  If  we  assume  that  EchoStar  gained  customers  at  a  rate  equivalent  to  its  market 
 share  relative  to  DirecTV,  Time  Warner  would  have  lost  a  further  [REDACTED]  of  its  customer  base  to  EchoStar. 


 24.  We  would  like  to  verify  our  assumptions  about  the  churn  rate  of  DirecTV  customers  following  the  return  of  the  signal,  but  are  unable  to  do  so,  because  the  churn  resulting  from  this  incident 
 would  not  evidence  itself  until  2001  when  the  1-  year  contracts  signed  by  consumers  expired.  The  data  submitted  by  DirecTV  exhibits  a  discontinuity  between  2000  and  2001  due  to  the  acquisition  and 
 conversion  of  PrimeStar  customers.  Consequently,  we  must  rely  on  our  analysis  of  churn  following  the  return  of  withdrawn  regional  sports  programming. 


 II.  STAFF  ANALYSIS  OF  THE  LIKELIHOOD  OF  FORECLOSURE  IN  THE  REGIONAL  SPORTS  NETWORK  MARKET 
 25.  The  analysis  of  the  incentive  and  ability  of  News  Corp.  to  withhold  carriage  of  regional  sports  networks  (RSNs)  from  DirecTVs  competitors  in  the  MVPD  market  closely  follows  the  methods 
 used  in  the  analysis  of  the  same  issue  in  the  local  broadcast  programming  market.  We  calculate  the  number  of  consumers  that  must  switch  to  DirecTV  to  compensate  for  the  loss  in  revenue  when  a  cable 
 system  no  longer  carries  the  RSN.  As  with  our  analysis  of  the  withholding  of  broadcast  television  station  signals,  we  consider  cases  of  permanent  and  temporary  withholding. 


 A.  Permanent  Withdrawal  of  the  Regional  Sports  Network  from  Rival  MVPDs 
 26.  The  case  of  permanent  foreclosure  differs  slightly  from  that  examined  in  the  local  broadcast  station  segment  since  RSN  programming  is  generally  not  available  over  the  air.  If  News  Corp. 


 removes  its  RSN  from  a  rival  MVPD  it  loses  the  advertising  revenues  associated  with  all  of  those  subscribers,  not  just  a  fraction  as  was  the  case  with  the  local  broadcast  station.  In  addition  to  a  loss  in 
 advertising  revenue,  there  is  also  the  loss  in  the  affiliate  fees  paid  by  the  rival  MVPD  for  the  right  to  carry  the  RSN.  The  gain  to  News  Corp.  of  a  permanent  withholding  strategy  is  its  share  of  the  joint 
 profits  earned  from  the  consumers  that  switch  from  the  rival  MVPD,  as  well  as  the  affiliate  fees  and  advertising  revenues  those  consumers  bring  with  them. 


 27.  Applicants  assert  that  permanent  withholding  of  a  RSN  from  a  rival  MVPD  is  not  a  rational  economic  act.  55  Their  analysis,  using  the  same  method  as  they  employed  in  analyzing  the 


 54  This  estimate  is  based  upon  DirecTV  October  24,  2003  Response  to  the  Commissions  Second  Information  and 
 Document  Request  [REDACTED]  as  well  as  GDT  ZIP  code  boundaries  and  MediaPrints  cable  system  boundaries. 


 55  Applicants  Reply  at  27-  36. 
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 we  do  not  possess  sufficient  information  about  the  locations  and  market  shares  of  the  cable  systems  that  carry  and  do  not  carry  the  relevant  RSNs  to  make  precise  calculations  regarding  News  Corp.  s  incentives 
 to  withhold  programming.  However,  to  the  extent  that  DirecTV  and  EchoStar  are  much  closer  substitutes,  News  Corp.  would  have  an  even  greater  incentive  to  withhold  programming  from  EchoStar 
 since  a  larger  fraction  of  EchoStars  customers  would  be  likely  to  shift  to  DirecTV  than  to  cable. 
 31.  The  analysis  of  the  incentives  for  News  Corp.  to  permanently  withhold  regional  sports  networks  from  rival  MVPDs  indicates  that  this  is  unlikely  to  be  a  profitable  endeavor  for  News  Corp.  If 


 News  Corp.  could  claim  50%  of  the  joint  profits  from  a  withdrawal  strategy,  it  would  find  permanently  withholding  a  RSN  from  a  rival  MVPD  to  be  profitable  if  between  [REDACTED]  and  [REDACTED] 
 of  cable  customers  switched  to  a  DBS  provider.  If  News  Corp.  receives  100%  of  the  joint  profits  from  the  strategy,  the  percentage  of  the  rival  MVPDs  customers  that  must  switch  to  make  permanent 
 foreclosure  profitable  is  between  [REDACTED]  and  [REDACTED].  Table  A-  4  presents  the  percentage  of  all  rival  cable  subscribers  that  reside  in  areas  where  News  Corp.  would  find  it  profitable  to 
 permanently  withdraw  its  RSN.  This  value  will  depend  on  the  percent  of  rival  cable  subscribers  that  shift  to  DBS  in  response  to  the  removal  of  the  local  broadcast  station  from  their  chosen  MVPD.  We 
 hypothesize  a  range  of  values  from  [REDACTED]  to  [REDACTED].  If  we  can  expect  [REDACTED]  of  rival  cable  customers  to  defect  to  DBS  following  a  withdrawal  of  the  RSN,  News  Corp. 
 [REDACTED]  when  they  can  lay  claim  to  50%  of  the  additional  joint  profits.  If  News  Corp.  gains  100%  of  the  additional  joint  profits,  [REDACTED]  of  all  rival  cable  subscribers  would  be  at  risk  from 
 suffering  under  a  permanent  withdrawal  of  the  programming. 
 32.  Table  A-  4.  Percentage  of  Cable  Subscribers  at  Risk  of  a  Permanent  Withdrawal  of  Regional  Sports  Programming.[  REDACTED] 


 B.  Temporary  Withdrawal  of  Regional  Sports  Networks  from  Rival  MVPDs 
 33.  JCC  argue  that  the  more  likely  harm  is  from  temporary  withdrawal  of  an  RSN  during  pricing  disputes  as  a  tactic  to  negotiate  higher  affiliate  fees,  rather  than  the  threat  to  permanently 


 withdraw  the  RSN.  63  They  estimate  that  as  few  as  [REDACTED]  of  cable  subscribers  must  shift  to  DirecTV  for  a  strategy  of  temporary  withholding  to  be  a  credible  threat  in  affiliate  fee  negotiations.  64 
 Applicants  instead  contend  that  at  least  [REDACTED]  of  cable  subscribers  must  shift  to  DirecTV  for  News  Corp.  to  earn  a  profit  by  temporarily  withholding  a  RSN.  65 


 34.  The  analysis  of  temporary  foreclosure  of  RSNs  by  News  Corp.  takes  a  slightly  different  tack  than  the  analysis  of  temporary  foreclosure  of  the  local  broadcast  stations  signals.  In  that  analysis, 
 the  losses  and  gains  of  foreclosure  were  based  on  advertising  revenue,  which  were  the  same  regardless  of  which  MVPD  in  a  DMA  was  the  rival.  With  RSNs,  the  losses  from  foreclosure  also  depend  upon  the 
 affiliate  fees,  and  those  vary  across  MVPDs.  Therefore  we  will  analyze  a  temporary  foreclosure  situation  assuming  that  News  Corp.  removes  an  RSN  from  a  specific  MSO,  but  not  from  EchoStar. 
 Again,  we  analyze  this  scenario  because  [REDACTED].  As  with  our  analysis  of  permanent  foreclosure  of  a  RSN,  we  do  not  have  adequate  data  to  allow  us  to  analyze  the  likelihood  of  a  temporary  withdrawal 
 of  a  RSN  from  EchoStar,  [REDACTED]. 
 63  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  2. 
 64  JCC  Sept.  23  Ex  Parte,  Rogerson  Analysis  III  at  11. 
 65  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II    16. 
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 35.  Applicants  in  their  calculations  assume  that  the  withdrawal  of  the  RSN  lasts  for  three  months,  after  which  time  it  is  returned  to  the  rival  MVPD.  66  JCC  suggests  that  a  more  appropriate 
 assumption  would  be  a  one  month  withdrawal,  the  same  period  as  Applicants  and  Cablevision  use  to  analyze  the  profitability  of  withdrawal  of  a  broadcast  television  station  signal.  67  As  with  the  temporary 
 foreclosure  analysis  of  the  local  broadcast  station  market,  we  will  assume  that  the  foreclosure  lasts  for  one  month,  during  which  time  a  fraction  of  the  MSOs  subscribers  will  shift  to  a  DBS  provider  carrying 
 the  RSN.  We  assume  that  switching  cable  subscribers  go  to  the  two  DBS  companies  in  the  same  proportion  as  their  national  market  shares,  42%  will  go  to  EchoStar  and  58%  will  go  to  DirecTV.  68  We 
 will  also  assume  that  the  rate  at  which  customers  return  to  their  original  MVPD  is  the  same  regardless  which  DBS  firm  they  moved  to.  The  pattern  will  match  that  of  our  local  broadcast  station  analysis  in 
 that  no  customers  will  leave  the  DBS  firms  for  the  first  12  months  following  the  temporary  foreclosure,  [REDACTED]  will  leave  once  their  contracts  expire,  and  in  all  following  months,  [REDACTED]  of  the 
 remaining  customers  will  return  to  their  original  MVPDs. 
 36.  Under  this  scenario,  the  cost  to  News  Corp.  of  the  temporary  foreclosure  in  the  first  month  is  the  foregone  affiliate  fees  from  the  cable  company  for  the  first  month,  as  well  as  the  advertising 


 revenues  those  subscribers  would  have  generated.  In  subsequent  months,  News  Corp.  will  continue  to  lose  a  fraction  of  the  affiliate  fees  and  advertising  revenue  from  the  cable  provider  since  a  portion  of  the 
 cable  subscriber  base  will  have  switched  to  EchoStar  and  DirecTV,  although  over  time  as  subscribers  shift  back  to  cable,  this  loss  diminishes.  The  gain  to  News  Corp.  in  the  first  month  consists  of  its  share 
 of  DirecTVs  profit  margin  minus  the  subscriber  acquisition  cost.  It  receives  this  gain  from  the  58%  of  defecting  cable  subscribers  that  choose  to  switch  to  DirecTV.  It  also  receives  affiliate  fees  and 
 advertising  revenue  from  DirecTV  and  EchoStar  for  the  fractions  of  defecting  subscribers  that  switch  to  those  services.  In  the  second  through  twelfth  months,  News  Corp.  receives  its  share  of  DirecTVs 
 additional  profits  as  well  as  the  RSN  affiliate  fees  and  advertising  revenues  from  the  DBS  providers.  In  the  thirteenth  month,  [REDACTED]  of  the  former  cable  customers  that  switched  to  DirecTV  and 
 EchoStar  will  return  to  the  cable  MSO.  In  each  subsequent  month,  EchoStar  and  DirecTV  will  lose  [REDACTED]  of  the  remaining  customers.  These  flows  of  costs  and  benefits  are  discounted  in  the 
 same  manner  as  in  our  analysis  of  the  broadcast  station  segment. 
 37.  Our  analysis  of  the  incentives  for  News  Corp.  to  engage  in  a  strategy  of  temporary  foreclosure  against  any  of  the  [REDACTED]  MSOs  carrying  a  News  Corp.-  managed  RSN  indicates  that 


 there  is  a  strong  possibility  that  this  type  of  behavior  can  be  profitable  following  the  transaction.  If  News  Corp.  could  claim  50%  of  the  additional  joint  profits,  it  would  find  a  one  month  temporary  withdrawal  of 
 the  RSN  to  be  profitable  if,  depending  on  the  RSN  and  cable  operator,  between  [REDACTED]  and  [REDACTED]  of  cable  customers  switched  to  a  DBS  provider.  If  News  Corp.  can  lay  claim  to  100%  of 
 the  additional  joint  profits,  the  percentage  of  cable  customers  that  must  switch  to  make  temporary  foreclosure  profitable  is  between  [REDACTED]  and  [REDACTED]  for  the  various  cable  operators  and 
 RSNs.  Table  A-  5  presents  the  percentage  of  rival  cable  subscribers  that  reside  in  areas  where  News  Corp.  would  find  it  profitable  to  temporarily  withhold  its  RSN.  This  value  depends  on  the  percent  of 
 subscribers  to  cable  companies  that  shift  in  response  to  the  one  month  withdrawal  of  the  RSN.  We  examine  the  extent  of  the  profitability  of  temporary  withholding  for  a  range  of  values  of  the  consumer 


 66  Id. 
 67  JCC  Sept.  23  Ex  Parte,  Rogerson  Analysis  III  at  10. 
 68  Applicants  Reply,  CRA  Analysis    32. 
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 response.  If  [REDACTED]  of  cable  customers  defect  to  DirecTV  following  a  withdrawal  of  the  RSN,  News  Corp.  would  find  the  withdrawal  profitable  in  areas  with  [REDACTED]  of  RSN  cable  subscribers 
 if  News  Corp.  can  lay  claim  to  50%  of  the  joint  profits.  If  News  Corp.  gains  100%  of  the  joint  profits,  [REDACTED]  of  RSN  cable  subscribers  are  at  risk  from  suffering  under  a  temporary  withdrawal  of  the 
 programming. 
 38.  Table  A-  5.  Percentage  of  Cable  Subscribers  at  Risk  of  a  Temporary  Withdrawal  of  Regional  Sports  Programming.[  REDACTED] 


 C.  Estimation  of  the  Impact  on  DirecTV  of  the  Withdrawal  of  Regional  Sports  Networks  from  Rival  MVPDs 
 39.  Parties  in  this  proceeding  have  alleged  that  News  Corp.,  once  the  transaction  has  been  completed,  will  have  an  incentive  to  engage  in  temporary  foreclosure  as  a  strategy  to  increase  rates  for 
 the  Fox-  managed  RSNs,  as  well  as  shift  subscribers  from  rival  MVPDs  to  DirecTV.  At  the  heart  of  these  claims  are  suppositions  about  how  consumers  react  when  a  RSN  is  removed  from  one  MVPD,  but 
 remains  available  on  other  MVPDs.  We  estimate  the  actual  shifts  in  subscribers  that  occurred  during  periods  when  the  Yankees  Entertainment  and  Sports  Network  (YES)  was  unavailable  to  subscribers  of 
 the  Cablevision  cable  system  and  the  EchoStar  DBS  service,  but  was  available  to  DirecTV  subscribers. 
 40.  On  March  19,  2002  the  YES  network  was  launched  as  a  regional  sports  network  in  the  New  York  area.  At  the  time  of  launch,  the  network  had  agreements  with  several  professional  sports 


 teams,  as  well  as  an  assortment  of  local  high  school  and  college  sporting  events.  At  launch,  the  network  carried  New  York  Yankees  baseball  games.  69  In  November  of  2002  New  Jersey  Nets  basketball  games 
 became  available.  70  These  teams  had  previously  been  available  on  competing  RSNs  which  were  carried  by  many  local  cable  companies  and  both  DBS  providers.  71  Prior  to  launch,  YES  network  reached 
 affiliate  agreements  with  35  cable  companies  as  well  as  DirecTV.  72  It  did  not  reach  an  agreement  with  either  Cablevision  or  EchoStar.  On  March  31,  2003,  approximately  25  minutes  prior  to  the  start  of  the 
 first  Yankees  game  of  the  season,  Cablevision  and  YES  reached  an  interim  agreement  for  carriage.  73  EchoStar  still  does  not  carry  the  YES  network. 


 41.  This  episode  of  availability,  followed  by  withdrawal,  followed  by  availability  exhibits  the  pattern  of  temporary  foreclosure  proposed  by  some  parties  in  this  proceeding.  Several  parties  have 
 argued  that  this  episode  can  provide  a  prime  example  of  the  likely  shifts  in  MVPD  subscribers  when  faced  with  a  temporary  withdrawal  of  a  RSN.  74  Applicants  argue  that  the  impact  on  Cablevision  of  the 
 loss  of  New  York  Yankees  games,  as  well  as  other  professional  sports  teams,  was  on  the  order  of  30,000 
 69  Christopher  Schultz,  The  Starting  Lineup,  Cable  World,  March  18,  2002. 
 70  Steve  Zipay,  Nets  Latest  Victim  of  Cablevision  Greed,  Newsday,  November  13,  2002. 
 71  Erin  McClam,  Opening  Day  Deal  for  Cablevision,  YES  Network,  Associated  Press,  April  1,  2003. 
 72  Id. 
 73  Id. 
 74  JCC  Sept.  23  Ex  Parte,  Rogerson  Analysis  III  at  16;  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II  at  10-  11; 
 Letter  from  Pantelis  Michalopoulos,  Steptoe  and  Johnson,  L.  L.  P.,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Dec.  15,  2003)  (  EchoStar  Dec.  15  Ex  Parte)  at  4-  5. 
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 customers.  75  However  no  party  conducted  a  thorough  examination  of  the  effect  of  this  episode  on  the  numbers  of  DirecTV  subscribers,  while  accounting  for  pre-  existing  patterns  of  subscriber  shifts  which 
 are  naturally  occurring  in  the  MVPD  marketplace.  76 
 42.  We  approach  the  problem  in  the  same  fashion  as  we  estimated  the  impact  of  the  warnings  and  ultimate  withdrawal  of  the  ABC  affiliate  in  Houston.  We  obtain  data  from  two  separate  groups.  A 


 control  group  which  is  unaffected  by  the  policy  for  the  entire  period  under  observation,  and  a  treatment  group,  that  for  some  period  of  time  has  the  policy  applied  to  them.  The  policy  or  treatment  is  the 
 removal  of  Yankees  and  Nets  games  from  the  cable  system.  Our  treatment  group  consists  of  those  ZIP  codes  within  the  New  York  DMA  that  are  wholly  served  by  Cablevision.  For  our  control  group  we  use 
 those  ZIP  codes  within  the  New  York  DMA  that  are  wholly  served  by  Time  Warner,  which  had  reached  an  agreement  to  carry  the  YES  network.  77  We  measure  the  effect  of  these  events  on  the  growth  rate  in 
 DirecTV  subscribers  for  each  month  between  January  2001  and  June  2003. 
 43.  Table  A-  6  presents  the  estimated  treatment  effects  for  each  month  since  January  2002.  The  values  represent  the  additional  percentage  growth  in  subscribers  above  what  would  have  been 


 predicted  to  occur  had  Cablevision  been  carrying  the  YES  network.  The  pattern  is  growth  rates  follows  what  we  might  reasonably  expect  to  see  happen.  [REDACTED]. 


 44.  Table  A-  6.  Additional  DirecTV  Subscriber  Growth  in  New  York  due  to  YES  Dispute  with  Cablevision.  [REDACTED] 
 45.  We  can  calculate  the  short-  term  impact  of  the  withdrawal  of  New  York  Yankees  games  by  applying  the  excess  growth  rates  [REDACTED].  78  [REDACTED].  79  Therefore  we  estimate  that  the 
 withdrawal  of  Yankees  games  during  April  of  2002  cost  Cablevision  [REDACTED]  of  its  customer  base.  If  we  assume  that  a  similar  shift  away  from  Cablevision  would  occur  if  both  competitors,  EchoStar 
 and  DirecTV,  carried  the  desired  programming  but  Cablevision  did  not,  our  results  indicate  that  DirecTV  would  capture  [REDACTED]  of  Cablevisions  customers  and  EchoStar  would  capture  [REDACTED] 
 during  a  one  month  withdrawal  of  programming.  Over  the  entire  one-  year  course  of  the  dispute,  our  analysis  predicts  that  DirecTV  gained  an  additional  [REDACTED]  subscribers  due  to  the  absence  of  the 
 YES  network  on  Cablevision  and  EchoStar.  This  equates  to  an  increase  of  [REDACTED]  of  DirecTV  customers  and  a  loss  of  [REDACTED]  to  Cablevision. 


 75  Some  press  reports  put  this  figure  as  high  as  39,400.  See  for  example  Erin  McClam,  Opening  Day  Deal  for 
 Cablevision,  YES  Network,  Associated  Press,  April  1,  2003. 
 76  EchoStar  did  perform  an  analysis  of  its  loss  in  customers  due  to  its  lack  of  the  YES  network.  However,  the 
 additional  incentive  to  engage  in  temporary  foreclosure  that  this  transaction  creates  is  derived  from  the  customers  that  shift  to  DirecTV.  EchoStars  analysis  only  examines  an  unknown  fraction  of  that  shift.  EchoStar  Dec.  15  Ex 


 Parte,  Exhibit  1. 
 77  To  make  a  determination  of  which  ZIP  codes  fall  within  the  service  areas  of  the  two  firms  we  use  the  May  2003 
 GDT  Dynamap  2000  ZIP  code  boundaries  and  the  3  rd  Quarter  2002  incumbent  cable  operator  service  territories  from  MediaPrints. 


 78  This  estimate  is  based  upon  DirecTV  July  30,  2003  Response  [REDACTED]  as  well  as  GDT  ZIP  code 
 boundaries  and  MediaPrints  cable  system  boundaries. 
 79  CSC  HOLDINGS  INC  8-  k,  May  15,  2003. 
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 46.  Applicants  have  argued  that  the  maximum  shift  from  Cablevision  to  DirecTV  was  on  the  order  of  30,000  subscribers  for  the  entire  one  year  period.  We  reject  that  estimate  for  a  number  of 
 reasons.  First  and  foremost,  we  have  no  information  on  how  this  value  was  generated  and  what  factors  it  takes  into  account.  Cablevisions  SEC  reports  indicate  that  between  December  2000  and  December 
 2001  the  percentage  of  homes  served  rose  from  68.0%  to  69.4%.  However,  by  the  end  of  March  2002,  this  penetration  rate  had  fallen  to  69.1%  of  homes  passed.  This  decline  continued  through  March  2003, 
 when  it  reached  a  low  of  67.5%.  The  most  recent  figures,  for  June  of  2003,  indicate  that  this  trend  has  been  reversed,  with  the  penetration  rate  rising  to  67.6%.  Cablevision  passes  slightly  more  than  4  million 
 homes  in  the  New  York  area,  so  each  point  of  penetration  corresponds  to  approximately  40,000  customers.  This  naive  analysis  would  indicate  that  Cablevision  may  have  lost  64,000  customers  over  the 
 course  of  the  year  in  which  it  did  not  carry  YES.  Cablevisions  own  data  indicate  a  substantial  loss  in  customers,  a  loss  in  excess  of  the  30,000  claimed  by  Applicants. 


 47.  We  also  need  to  assess  the  extent  to  which  the  return  of  withdrawn  programming  to  an  MVPD  provider  influences  the  behavior  of  consumers.  Applicants  argue  that  once  the  temporarily 
 withdrawn  programming  has  returned  to  an  MVPD  those  households  that  switched  to  DirecTV  are  more  likely  to  leave  DirecTV  and  return  to  their  previous  service  providers.  80  Other  parties  however  argue 
 that  those  customers  that  switched  may  be  less  likely  to  move  back  for  a  number  of  reasons,  including  a  concern  that  the  programming  may  be  withdrawn  again.  81  Using  the  same  technique  as  we  did  to 
 examine  the  shift  in  consumers,  we  can  examine  the  churn,  or  disconnect,  rate  of  DirecTV  subscribers  in  Time  Warner  and  Cablevision  service  areas  of  the  New  York  DMA.  Our  previous  regression  results 
 indicate  that  [REDACTED].  Estimating  exactly  the  same  regression  specification  with  the  exception  of  using  the  percentage  of  customers  disconnecting  in  a  month  as  the  dependent  variable,  we  find 
 [REDACTED].  We  would  have  expected  the  monthly  disconnect  rate  in  Cablevision  ZIP  codes  to  have  been  [REDACTED].  Therefore,  we  will  assume  that  the  disconnect  rate  is  [REDACTED]  that  for  other 
 DirecTV  customers  in  the  time  period  when  the  DirecTV  contracts  expire  for  those  customers  who  shifted  due  to  the  temporary  withdrawal.  Applicants  report  that  [REDACTED]  of  customers  drop 
 DirecTV  service  after  1  year,  so  we  estimate  that  [REDACTED]  of  customers  induced  to  switch  to  DirecTV  during  a  temporary  withdrawal  will  drop  DirecTV  service  once  their  contract  expires. 


 80  Applicants  Sept.  8  Ex  Parte,  CRA  Analysis  II    12 
 81  JCC  Aug.  4  Ex  Parte,  Rogerson  Analysis  II  at  17;  Cablevision  Sept.  25  Ex  Parte,  Rubinfeld  Analysis  II  at  9. 
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 APPENDIX  E 
 HUGHES  ELECTRONICS  CORPORATION  (hereinafter  called  the  Corporation) 
 AMENDED  AND  RESTATED  BY-  LAWS  EXHIBIT  1 


 STOCKHOLDERS 
 Section  1.  Annual  Meeting;  Notice  of  Stockholders  Nominations  and  Other  Proposed  Stockholder  Action.  The  Annual  Meeting  of  the  stockholders  for  the  purpose  of  electing 
 Directors  and  for  the  transaction  of  such  other  business  as  may  properly  come  before  the  meeting  in  accordance  with  these  By-  Laws,  shall  be  held  at  such  place,  on  such  date,  and  at  such  time  as  may  be 
 fixed  by  the  Board  of  Directors  (the  Board)  and  stated  in  the  notice  of  meeting. 
 (a)  Nominations  of  persons  for  election  to  the  Board  and  the  proposal  of  business  to  be  transacted  by  the  stockholders  may  be  made  at  an  Annual  Meeting  of  stockholders  (i) 
 pursuant  to  the  Corporations  notice  with  respect  to  such  meeting,  (ii)  by  or  at  the  direction  of  the  Board  or  (iii)  by  any  stockholder  of  record  of  the  Corporation  who  was  a  stockholder  of  record  at  the  time  of  the 
 giving  of  the  notice  provided  for  in  the  following  paragraph,  who  is  entitled  to  vote  at  the  meeting  and  who  has  complied  with  the  notice  procedures  set  forth  in  Section  1(  b)  below. 


 (b)  For  nominations  or  other  business  to  be  properly  brought  before  an  Annual  Meeting  of  stockholders  by  a  stockholder  pursuant  to  clause  (iii)  of  the  foregoing  paragraph,  (i) 
 the  stockholder  must  have  given  timely  notice  thereof  in  writing  to  the  Secretary  of  the  Corporation;  (ii)  such  business  must  be  a  proper  matter  for  stockholder  action  under  the  General  Corporation  Law  of  the 
 State  of  Delaware  (the  DGCL);  (iii)  if  the  stockholder  has  provided  the  Corporation  with  a  Solicitation  Notice  (as  defined  herein)  such  stockholder  must,  in  the  case  of  a  proposal,  have  delivered  a  proxy 
 statement  and  form  of  proxy  to  holders  of  at  least  the  percentage  of  the  Corporations  voting  shares  required  under  applicable  law  to  carry  any  such  proposal,  or,  in  the  case  of  a  nomination  or  nominations, 
 have  delivered  a  proxy  statement  and  form  of  proxy  to  holders  of  a  percentage  of  the  Corporations  voting  shares  reasonably  believed  by  such  stockholder  to  be  sufficient  to  elect  the  nominee  or  nominees 
 proposed  to  be  nominated  by  such  stockholder,  and  must,  in  either  case,  have  included  in  such  materials  the  Solicitation  Notice;  and  (iv)  if  no  Solicitation  Notice  relating  thereto  has  been  timely  provided 
 pursuant  to  this  Section  1,  the  stockholder  or  Beneficial  Owner  proposing  such  business  or  nomination  must  not  have  solicited  a  number  of  proxies  sufficient  to  have  required  the  delivery  of  such  a  Solicitation 
 Notice  under  this  Section  1. 
 To  be  timely,  a  stockholders  notice  shall  be  delivered  to  the  Secretary  of  the  Corporation  at  the  principal  executive  offices  of  the  Corporation  not  later  than  the  close  of  business  on  the 
 120th  day  nor  earlier  than  the  close  of  business  on  the  150th  day  prior  to  the  first  anniversary  (the  Proxy  Mailing  Anniversary)  of  the  date  on  which  the  Corporation  first  mailed  its  proxy  materials  for  the 
 preceding  years  Annual  Meeting  of  stockholders;  provided,  however,  that  if  the  date  of  the  Annual  Meeting  is  advanced  more  than  30  days  prior  to  or  delayed  by  more  than  30  days  after  the  anniversary  of 
 the  preceding  years  Annual  Meeting,  notice  by  the  stockholder  to  be  timely  must  be  so  delivered  not  later  than  the  close  of  business  on  the  later  of  (i)  the  150th  day  prior  to  the  first  anniversary  of  the 
 preceding  years  Annual  Meeting  or  (ii)  the  10th  day  following  the  day  on  which  public  announcement  of  the  date  of  such  meeting  is  first  made. 
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 Such  stockholders  notice  shall  set  forth  (i)  as  to  each  person  whom  the  stockholder  proposes  to  nominate  for  election  or  reelection  as  a  Director  all  information  relating  to  such 
 person  as  would  be  required  to  be  disclosed  in  solicitations  of  proxies  for  the  election  of  such  nominees  as  Directors  pursuant  to  Regulation  14A  under  the  Securities  Exchange  Act  of  1934,  as  amended  (the 
 Exchange  Act),  and  such  persons  written  consent  to  be  named  as  a  nominee  and  to  serve  as  a  Director  if  elected;  (ii)  as  to  any  other  business  that  the  stockholder  proposes  to  bring  before  the  meeting,  a  brief 
 description  of  such  business,  the  reasons  for  conducting  such  business  at  the  meeting  and  any  material  interest  in  such  business  of  such  stockholder;  and  (iii)  as  to  the  stockholder  giving  the  notice  (A)  the  name 
 and  address  of  such  stockholder,  as  they  appear  on  the  Corporations  books,  (B)  the  class  and  number  of  shares  of  the  Corporation  that  are  owned  beneficially  or  of  record  by  such  stockholder,  and  (C)  whether 
 either  such  stockholder  intends  to  deliver  a  proxy  statement  and  form  of  proxy  to  holders  of,  in  the  case  of  a  proposal,  at  least  the  percentage  of  the  Corporations  voting  shares  required  under  applicable  law  to 
 carry  the  proposal  or,  in  the  case  of  a  nomination  or  nominations,  a  sufficient  number  of  holders  of  the  Corporations  voting  shares  to  elect  such  nominee  or  nominees  (an  affirmative  statement  of  such  intent,  a 
 Solicitation  Notice). 
 Notwithstanding  anything  in  the  second  sentence  of  Section  1(  b)  to  the  contrary,  in  the  event  that  (x)  the  number  of  Directors  to  be  elected  to  the  Board  is  increased  and  (y)  there  is  no 
 public  announcement  naming  all  of  the  nominees  for  Director  or  specifying  the  size  of  the  increased  Board  made  by  the  Corporation  on  or  prior  to  the  120th  day  prior  to  the  Proxy  Mailing  Anniversary, 
 a  stockholders  notice  required  by  this  By-  Law  shall  also  be  considered  timely,  but  only  with  respect  to  nominees  for  any  new  positions  created  by  such  increase,  if  it  shall  be  delivered  to  the  Secretary  at  the 
 principal  executive  offices  of  the  Corporation  not  later  than  the  close  of  business  on  the  10th  day  following  the  day  on  which  such  public  announcement  is  first  made  by  the  Corporation. 


 Only  persons  nominated  in  accordance  with  the  procedures  set  forth  in  this  Section  1(  b)  shall  be  eligible  to  serve  as  Directors  and  only  such  business  shall  be  conducted  at  an  Annual 
 Meeting  of  stockholders  as  shall  have  been  brought  before  the  meeting  in  accordance  with  the  procedures  set  forth  in  this  Section  1(  b).  The  chairman  of  the  meeting  shall  have  the  power  and  the  duty  to  determine 
 whether  a  nomination  or  any  business  proposed  to  be  brought  before  the  meeting  has  been  made  in  accordance  with  the  procedures  set  forth  in  these  By-  Laws  and,  if  any  proposed  nomination  or  business  is 
 not  in  compliance  with  these  By-  Laws,  to  declare  that  such  defective  proposed  business  or  nomination  shall  not  be  presented  for  stockholder  action  at  the  meeting  and  shall  be  disregarded. 


 Nominations  by  stockholders  of  persons  for  election  to  the  Board  may  be  made  at  a  special  meeting  of  stockholders  if  the  stockholders  notice  required  by  this  Section  1(  b)  shall  be 
 delivered  to  the  Secretary  at  the  principal  executive  offices  of  the  Corporation  not  later  than  the  close  of  business  on  the  later  of  the  150th  day  prior  to  such  special  meeting  or  the  10th  day  following  the  day  on 
 which  public  announcement  is  first  made  of  the  date  of  the  special  meeting  and  of  the  nominees  proposed  by  the  Board  to  be  elected  at  such  meeting. 


 For  purposes  of  this  Section  1,  public  announcement  shall  mean  disclosure  in  a  press  release  reported  by  the  Dow  Jones  News  Service,  Associated  Press  or  a  comparable  national  news 
 service  or  in  a  document  publicly  filed  by  the  Corporation  with  the  Securities  and  Exchange  Commission  pursuant  to  Section  13,  14  or  15(  d)  of  the  Exchange  Act. 


 Notwithstanding  the  foregoing  provisions  of  this  Section  1(  b),  a  stockholder  shall  also  comply  with  all  applicable  requirements  of  the  Exchange  Act  and  the  rules  and  regulations 
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 thereunder  with  respect  to  matters  set  forth  in  this  Section  1(  b).  Nothing  in  this  Section  1(  b)  shall  be  deemed  to  affect  any  rights  of  stockholders  to  request  inclusion  of  proposals  in  the  Corporations  proxy 
 statement  pursuant  to  Rule  14a-  8  under  the  Exchange  Act. 
 Section  2.  Special  Meetings;  Notice. 
 Special  meetings  of  the  stockholders,  other  than  those  required  by  statute,  may  be  called  at  any  time  by  (a)  the  Board  pursuant  to  a  resolution  approved  by  a  majority  of  the  Board,  (b)  the 
 Chairman  or  a  Vice  Chairman  or  (c)  any  stockholder  of  the  Corporation  who  Beneficially  Owns  (as  defined  herein)  10%  or  more  of  the  Corporations  Voting  Securities  (as  defined  herein)  then  outstanding. 
 No  other  person  or  persons  may  call  a  special  meeting  of  stockholders  except  as  provided  in  the  Companys  Certificate  of  Incorporation,  as  amended  from  time  to  time  (the  Certificate  of 
 Incorporation).  Only  such  business  as  is  stated  in  the  notice  may  be  acted  upon  thereat.  The  foregoing  notwithstanding,  unless  otherwise  provided  in  the  Certificate  of  Incorporation,  whenever  the  holders  of 
 any  one  or  more  outstanding  series  of  Preferred  Stock  shall  have  the  right,  voting  separately  by  class  or  by  series,  as  applicable,  to  elect  Directors  at  any  Annual  Meeting  or  special  meeting  of  stockholders,  the 
 calling  of  special  meetings  of  the  holders  of  such  class  or  series  shall  be  governed  by  the  terms  of  the  applicable  resolution  or  resolutions  of  the  Board  establishing  such  series  of  preferred  stock  pursuant  to  the 
 Certificate  of  Incorporation.  The  Board  may  postpone  or  reschedule  any  previously  scheduled  special  meeting. 


 Nominations  of  persons  for  election  to  the  Board  may  be  made  at  a  special  meeting  of  stockholders  at  which  Directors  are  to  be  elected  pursuant  to  the  Corporations  notice  of  meeting  (a)  by  or 
 at  the  direction  of  the  Board,  or  (b)  by  any  stockholder  of  record  of  the  Corporation  who  is  a  stockholder  of  record  at  the  time  of  the  giving  of  notice  provided  for  in  Section  1(  b)  of  this  Article  I  entitled  to  vote  at 
 the  meeting  who  complies  with  the  notice  provisions  set  forth  in  Section  1(  b)  of  this  Article  I. 
 Section  3.  Notice  of  Meetings;  Adjournment. 
 Except  as  otherwise  provided  herein  or  required  by  applicable  law  (meaning,  here  and  hereinafter,  as  required  from  time  to  time  by  the  DGCL)  or  the  Certificate  of  Incorporation,  written  notice 
 of  the  place,  date,  and  time  of  all  meetings  of  the  stockholders  and  the  purpose  or  purposes  for  which  such  meeting  is  called  shall  be  given  by  mailing,  postage  prepaid,  a  copy  of  such  notice  addressed  to  each 
 stockholder  of  the  Corporation  entitled  to  vote  at  such  meeting  at  his  address  as  recorded  on  the  books  of  the  Corporation,  not  less  than  10  nor  more  than  60  days  before  the  date  on  which  the  meeting  is  to  be 
 held. 
 Any  meeting  may  be  adjourned  from  time  to  time,  whether  or  not  there  is  a  quorum,  either  (i)  in  the  discretion  of  the  chairman  of  the  meeting  where  necessary  for  the  proper  and  orderly 
 conduct  of  the  meeting  (including,  without  limitation,  where  necessary  to  tabulate  any  vote  the  tabulation  of  which  is  necessary  for  the  continued  conduct  of  the  meeting)  or  (ii)  by  vote  of  the  holders  of  a  majority 
 of  the  voting  power  of  the  shares  of  stock  present  at  the  meeting. 
 When  a  meeting  is  adjourned  to  another  place,  date  or  time,  written  notice  need  not  be  given  of  the  adjourned  meeting  if  the  place,  date  and  time  thereof  are  announced  at  the  meeting  at  which 
 the  adjournment  is  taken;  provided,  however,  that  if  the  date  of  any  adjourned  meeting  is  more  than  30  days  after  the  date  for  which  the  meeting  was  originally  noticed,  or  if  a  new  record  date  is  fixed  for  the 
 adjourned  meeting,  written  notice  of  the  place,  date  and  time  of  the  adjourned  meeting  shall  be  given  in 
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 conformity  herewith.  At  any  adjourned  meeting,  any  business  may  be  transacted  which  might  have  been  transacted  at  the  original  meeting. 
 Section  4.  Quorum. 
 At  any  meeting  of  the  stockholders,  the  holders  of  a  majority  of  all  of  the  shares  of  the  stock  entitled  to  vote  at  the  meeting,  present  in  person  or  represented  by  proxy,  shall  constitute  a  quorum 
 for  all  purposes,  unless  or  except  to  the  extent  that  the  presence  of  a  larger  number  may  be  required  by  these  By-  Laws,  the  Certificate  of  Incorporation  or  by  applicable  law.  Where  a  separate  vote  by  a  class  or 
 classes  or  series  is  required  by  law  or  by  the  Certificate  of  Incorporation,  a  majority  of  the  shares  of  such  class  or  classes  or  series  present  in  person  or  represented  by  proxy  shall  constitute  a  quorum  entitled  to 
 take  action  with  respect  to  that  vote  on  that  matter. 
 If  a  quorum  shall  fail  to  attend  any  meeting,  the  chairman  of  the  meeting  may  adjourn  the  meeting  from  time  to  time,  without  notice  other  than  by  announcement  to  the  meeting,  to  another  date, 
 place  and  time  until  a  quorum  shall  be  present. 
 Section  5.  Organization. 
 The  Chairman  of  the  Board  of  the  Corporation,  or,  in  his  or  her  absence,  such  person  as  the  Board  may  have  designated  or,  in  the  absence  of  such  a  person,  such  person  as  may  be  chosen  by  the 
 holders  of  a  majority  of  the  shares  entitled  to  vote  who  are  present,  in  person  or  represented  by  proxy,  shall  call  to  order  any  meeting  of  the  stockholders  and  act  as  chairman  of  the  meeting.  The  Secretary  of 
 the  Corporation,  or  if  he  or  she  is  not  present,  any  Assistant  Secretary,  or  in  the  absence  of  any  Assistant  Secretary  of  the  Corporation,  any  person  the  chairman  of  the  meeting  appoints  shall  act  as  the  Secretary 
 of  the  meeting. 
 Section  6.  Place  of  Meeting. 
 Meetings  of  the  stockholders  for  the  election  of  Directors  or  for  any  other  purpose  shall  be  held  at  such  time  and  place,  either  within  or  outside  the  State  of  Delaware,  as  shall  be  designated  from 
 time  to  time  by  the  Board  and  stated  in  the  notice  of  the  meeting  or  in  a  duly  executed  waiver  of  notice  thereof. 


 Section  7.  Conduct  of  Business. 
 The  date  and  time  of  the  opening  and  closing  of  the  polls  for  each  matter  upon  which  the  stockholders  will  vote  at  the  meeting  shall  be  announced  at  the  meeting.  The  Board  may  adopt  by 
 resolution  such  rules  and  regulations  for  the  conduct  of  meetings  as  it  shall  deem  appropriate.  Except  to  the  extent  inconsistent  with  such  rules  and  regulations  as  adopted  by  the  Board,  the  chairman  of  any 
 meeting  shall  have  the  right  and  authority  to  prescribe  such  rules,  regulations  and  procedures  and  to  do  all  such  acts  as,  in  the  judgment  of  the  chairman,  are  appropriate  for  the  proper  conduct  of  the  meeting.  Such 
 rules,  regulations  or  procedures,  whether  adopted  by  the  Board  or  prescribed  by  the  chairman  of  the  meeting,  may  include,  without  limitation,  the  following:  (i)  the  establishment  of  an  agenda  or  order  of 
 business  at  the  meeting;  (ii)  rules  and  procedures  for  maintaining  order  at  the  meeting  and  the  safety  of  those  present;  (iii)  limitations  on  attendance  at  or  participation  in  the  meeting  of  stockholders  of  record  of 
 the  Corporation,  their  duly  authorized  and  constituted  proxies  and  such  other  persons  as  the  chairman  of  the  meeting  shall  determine;  (iv)  restrictions  on  entry  to  the  meeting  after  the  time  fixed  for  the 
 commencement  thereof;  and  (v)  limitations  on  the  time  allotted  to  questions  or  comments  by  participants. 
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 Section  8.  Proxies  and  Voting. 
 At  any  meeting  of  the  stockholders,  every  stockholder  entitled  to  vote  may  vote  in  person  or  by  proxy  authorized  by  an  instrument  in  writing  or  by  a  transmission  permitted  by  law  filed  in 
 accordance  with  the  procedure  established  for  the  meeting.  Unless  otherwise  provided  in  the  Certificate  of  Incorporation,  each  stockholder  represented  at  a  meeting  of  stockholders  shall  be  entitled  to  cast  one 
 vote  for  each  share  of  capital  stock  entitled  to  vote  thereat  held  by  such  stockholder.  If  the  Certificate  of  Incorporation  provides  for  the  issuance  of  any  class  or  series  of  stock  which  is  convertible  into  any  other 
 class  or  series  of  stock,  as  a  condition  to  counting  the  votes  cast  by  any  holder  of  shares  at  any  annual  or  special  meeting  of  stockholders,  the  Board  or  a  duly  authorized  committee  thereof,  in  its  discretion,  may 
 require  the  holder  of  any  shares  to  furnish  such  affidavits  or  other  proof  as  the  Board  or  such  committee  deems  necessary  and  advisable  to  determine  whether  such  shares  have  been  converted  pursuant  to  the 
 terms  governing  the  issuance  and  conversion  of  such  shares  in  the  Certificate  of  Incorporation.  Any  copy,  facsimile  telecommunication  or  other  reliable  reproduction  of  the  writing  or  transmission  created 
 pursuant  to  this  paragraph  may  be  substituted  or  used  in  lieu  of  the  original  writing  or  transmission  for  any  and  all  purposes  for  which  the  original  writing  or  transmission  could  be  used,  provided  that  such 
 copy,  facsimile  telecommunication  or  other  reproduction  shall  be  a  complete  reproduction  of  the  entire  original  writing  or  transmission.  All  voting,  except  as  may  be  required  by  law,  including  voting  for  the 
 election  of  Directors  may  be  by  a  voice  vote;  provided,  however,  that  upon  demand  therefor  by  a  stockholder  entitled  to  vote  or  by  his  or  her  proxy,  or  upon  resolution  by  the  Board  in  its  discretion  or  by 
 action  of  the  chairman  of  the  meeting,  in  his  or  her  discretion,  a  stock  vote  may  be  taken.  Every  stock  vote  shall  be  taken  by  written  ballots,  each  of  which  shall  state  the  name  of  the  stockholder  or  proxy 
 voting  and  such  other  information  as  may  be  required  under  the  procedure  established  for  the  meeting.  Unless  otherwise  specified  by  the  Certificate  of  Incorporation  or  these  By-  Laws,  (i)  at  all  meetings  of 
 stockholders  for  the  election  of  Directors,  a  plurality  of  the  votes  cast  shall  be  sufficient  to  elect,  and  (ii)  any  other  question  brought  before  any  meeting  of  stockholders  shall  be  determined  by  the  votes  cast 
 affirmatively  or  negatively  by  the  holders  of  a  majority  of  the  stock  represented  and  entitled  to  vote  thereon. 


 Section  9.  Stock  List. 
 The  officer  of  the  Corporation  who  has  charge  of  the  stock  ledger  of  the  Corporation  shall  prepare  and  make,  at  least  10  days  before  every  meeting  of  stockholders,  a  complete  list  of  the 
 stockholders  entitled  to  vote  at  the  meeting,  arranged  in  alphabetical  order,  and  showing  the  address  of  each  stockholder  and  the  number  of  shares  registered  in  the  name  of  each  stockholder.  Such  list  shall  be 
 open  to  the  examination  of  any  stockholder,  for  any  purpose  germane  to  the  meeting,  during  ordinary  business  hours,  for  a  period  of  at  least  10  days  prior  to  the  meeting,  either  at  a  place  within  the  city  where 
 the  meeting  is  to  be  held,  which  place  shall  be  specified  in  the  notice  of  the  meeting,  or,  if  not  so  specified,  at  the  place  where  the  meeting  is  to  be  held.  The  list  shall  also  be  produced  and  kept  at  the  time 
 and  place  of  the  meeting  during  the  whole  time  thereof,  and  may  be  inspected  by  any  stockholder  of  the  Corporation  who  is  present.  The  stock  ledger  of  the  Corporation  shall  be  the  only  evidence  as  to  who  are 
 the  stockholders  entitled  to  examine  the  list  required  by  this  Section  9  or  the  books  of  the  Corporation,  or  to  vote  in  person  or  by  proxy  at  any  meeting  of  stockholders. 


 Section  10.  Inspector  of  Elections. 
 Before  any  meeting  of  stockholders,  the  Board  shall  appoint  one  or  more  inspectors  to  act  at  the  meeting  and  make  a  written  report  thereof.  The  Board  may  designate  one  or  more  persons  as 
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 alternate  inspectors  to  replace  any  inspector  who  fails  to  act.  If  no  inspector  or  alternate  is  able  to  act  at  a  meeting  of  stockholders,  the  chairman  of  the  meeting  shall  appoint  one  or  more  inspectors  to  act  at  the 
 meeting.  Each  inspector,  before  entering  upon  the  discharge  of  his  or  her  duties,  shall  take  and  sign  an  oath  faithfully  to  execute  the  duties  of  inspector  with  strict  impartiality  and  according  to  the  best  of  his  or 
 her  ability. 
 The  inspectors  shall,  in  accordance  with  these  By-  Laws  and  the  Certificate  of  Incorporation,  ascertain  the  number  of  shares  outstanding  and  the  voting  power  of  each,  determine  the 
 shares  represented  at  the  meeting  and  the  validity  of  proxies  and  ballots,  count  all  votes  and  ballots,  determine  and  retain  for  a  reasonable  period  a  record  of  the  disposition  of  any  challenges  made  to  any 
 determination  made  by  the  inspectors,  and  certify  their  determination  of  the  number  of  shares  represented  at  the  meeting  and  their  count  of  all  votes  and  ballots. 


 The  inspectors  may  appoint  or  retain  other  persons  or  entities  to  assist  the  inspectors  in  the  performance  of  their  duties.  In  determining  the  validity  and  counting  of  proxies  and  ballots,  the 
 inspectors  shall  act  in  accordance  with  applicable  law. 


 BOARD  OF  DIRECTORS 
 Section  1.  Number,  Election  and  Term  of  Directors. 
 Except  as  otherwise  fixed  by  or  pursuant  to  the  provisions  of  the  Certificate  of  Incorporation  relating  to  the  rights  of  the  holders  of  any  class  or  series  of  preferred  stock,  the  number  of 
 Directors  of  the  Corporation  shall  be  fixed  from  time  to  time  by  resolution  adopted  by  a  majority  of  the  entire  Board,  but  the  number  of  Directors  shall  at  no  time  be  less  than  eleven  (11)  and  initially  shall  be 
 eleven  (11).  Directors  need  not  be  stockholders.  Directors  shall  (except  as  hereinafter  provided  for  the  filling  of  vacancies)  be  elected  by  the  holders  of  the  shares  of  stock  entitled  to  vote  thereon,  by  a  plurality 
 vote  thereof,  at  the  Annual  Meeting  of  stockholders.  Each  Director  so  elected  shall  hold  office  until  such  Directors  successor  is  duly  elected  and  qualified,  or  until  such  Directors  death,  or  until  such  Directors 
 earlier  disqualification,  resignation,  retirement  or  removal. 
 Section  2.  Certain  Definitions.  For  the  purposes  of  these  By-  Laws: 
 Acquisition-  Related  Agreements  means  the  Merger  Agreement,  the  Stock  Purchase  Agreement  and  any  other  Transaction  Agreements  (as  defined  in  the  Stock  Purchase  Agreement). 


 Affiliate  with  respect  to  any  person  shall  mean  any  other  person  who,  directly  or  indirectly,  controls,  is  controlled  by  or  is  under  common  control  with  such  person. 
 Beneficially  Owns  (and  variations  thereof)  shall  have  the  same  meaning  as  under  Section  13(  d)  of  the  Exchange  Act  and  Regulation  13D-  G  thereunder  (or  any  successor  provision  of  law). 
 Employee  Director  means  a  Director,  who  at  the  time  of  taking  office  as  a  Director,  is  an  employee  of  the  Corporation  or  any  Subsidiary  of  the  Corporation. 
 Independent  Director  means  a  director  who  qualifies  as  an  independent  director  under  the  rules  and  regulations  of  the  New  York  Stock  Exchange  in  effect  from  time  to  time;  provided, 
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 however,  that  if,  at  any  particular  time,  the  New  York  Stock  Exchange  has  not  then  adopted  a  definition  of  independent  director,  Independent  Director  shall  mean  a  director  who,  as  determined  in  good  faith 
 by  the  Board  (other  than  the  "Independent  Director"  in  question),  has  no  relationship  to  the  Corporation  that  may  interfere  with  the  exercise  of  his  or  her  independence  from  management  of  the  Corporation  and 
 the  Corporation  and  no  material  relationship  with  any  member  of  the  Purchaser  Group  (as  defined  in  the  Certificate  of  Incorporation)  or  any  Purchaser  Successor  (as  defined  in  the  Certificate  of  Incorporation). 
 Merger  Agreement  shall  mean  the  Agreement  and  Plan  of  Merger,  dated  as  of  April  9,  2003,  as  amended,  by  and  among  the  Corporation,  The  News  Corporation  Limited  and  GMH  Merger  Sub,  Inc. 


 Purchaser  means  The  News  Corporation  Limited  and  any  successor  (by  merger,  consolidation,  transfer  of  assets  or  otherwise)  to  all  or  substantially  all  of  its  business  and  assets,  which 
 also  succeeds  to  ownership  of  all  or  substantially  all  of  its  ownership  of  Voting  Securities.  Stock  Purchase  Agreement  shall  mean  the  Stock  Purchase  Agreement.  dated  as  of  April  9,  2003,  as 
 amended,  by  and  among  The  News  Corporation  Limited,  GMH  Merger  Sub,  Inc.,  and  General  Motors  Corporation. 


 Subsidiary  with  respect  to  a  Person,  means  any  corporation,  limited  liability  company,  partnership,  trust  or  unincorporated  organization  of  which  such  Person  owns,  directly  or  indirectly,  50% 
 or  more  of  the  outstanding  stock  or  other  equity  interests,  the  holders  of  which  are  entitled  to  vote  for  the  election  of  the  board  of  directors  or  others  performing  similar  functions  with  respect  to  such  corporation, 
 limited  liability  company,  partnership,  trust  or  unincorporated  organization. 
 Voting  Securities  means  the  common  stock,  par  value  $0.01  per  share,  of  the  Corporation  and  any  shares  of  capital  stock  of  the  Corporation  entitled  to  vote  generally  in  the  election  of 
 Directors.  A  stated  percentage  of  the  Voting  Securities  shall  mean  a  number  of  shares  of  the  Voting  Securities  as  shall  equal  in  voting  power  that  stated  percentage  of  the  total  voting  power  of  the  then 
 outstanding  shares  of  Voting  Securities  entitled  to  vote  in  the  election  of  Directors. 
 Section  3.  Nomination  of  Directors. 
 (a)  Only  persons  who  are  nominated  in  accordance  with  the  following  procedures  shall  be  eligible  for  election  as  Directors  of  the  Corporation,  except  as  may  be  otherwise 
 provided  in  the  Certificate  of  Incorporation  with  respect  to  the  right  of  holders  of  any  class  or  series  of  preferred  stock  of  the  Corporation  to  nominate  and  elect  a  specified  number  of  Directors  in  certain 
 circumstances.  Nominations  of  persons  for  election  to  the  Board  may  be  made  at  any  Annual  Meeting  of  stockholders,  or  at  any  special  meeting  of  stockholders  called  for  the  purpose  of  electing  Directors,  (i)  by 
 or  at  the  direction  of  the  Nominating  Committee  or  (ii)  by  any  stockholder  of  record  of  the  Corporation  who  is  a  stockholder  of  record  at  the  time  of  the  giving  of  notice  provided  for  in  Section  1(  b)  or  Section  2 
 of  Article  I  entitled  to  vote  at  the  meeting  who  complies  with  the  notice  provisions  set  forth  in  Section  1(  b)  of  Article  I. 


 Section  4.  Newly  Created  Directorships  and  Board  Vacancies. 
 Subject  to  applicable  law  and  except  as  otherwise  provided  for  or  fixed  by  or  pursuant  to  the  Certificate  of  Incorporation  relating  to  the  rights  of  the  holders  of  any  class  or  series  of  preferred  stock 
 with  respect  to  such  class  or  series  of  preferred  stock,  newly  created  Directorships  resulting  from  any  increase  in  the  authorized  number  of  Directors  or,  subject  to  Section  12(  b)  of  this  Article  II  below,  any 
 vacancies  on  the  Board  resulting  from  death,  resignation,  retirement,  disqualification,  removal  from  office  or  other  cause  between  meetings  of  stockholders  shall  be  filled  only  by  the  affirmative  vote  of  a  majority 
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 of  all  of  the  Directors  then  in  office,  even  if  less  than  a  quorum,  or  a  duly  appointed  committee  of  the  Board,  but  in  any  event  not  by  the  stockholders.  Directors  so  chosen  shall  hold  office  until  such 
 Directors  successor  shall  have  been  duly  elected  and  qualified  or  until  his  earlier  death,  resignation,  retirement,  disqualification  or  removal  from  office  in  accordance  with  the  Certificate  of  Incorporation, 
 these  By-  Laws,  or  any  applicable  law  or  pursuant  to  an  order  of  a  court.  No  decrease  in  the  number  of  authorized  Directors  constituting  the  entire  Board  shall  shorten  the  term  of  any  incumbent  Director. 


 Section  5.  Regular  Meetings. 
 A  meeting  of  the  Board  shall  be  held  after  the  Annual  Meeting  of  the  stockholders  and  regular  meetings  of  the  Board  shall  be  held  at  such  place  or  places,  on  such  date  or  dates,  and  at  such  time 
 or  times  as  shall  have  been  established  by  the  Board  and  publicized  among  all  Directors.  Meetings  may  be  held  either  within  or  outside  the  State  of  Delaware.  A  notice  of  each  regular  meeting  shall  not  be 
 required. 
 Section  6.  Special  Meetings. 
 Special  meetings  of  the  Board  may  be  called  by  the  Chairman  of  the  Board,  by  the  Vice  Chairman,  by  the  President  or  by  two  or  more  Directors  then  in  office  and  shall  be  held  at  such  place,  on 
 such  date,  and  at  such  time  as  they  or  he  or  she  shall  fix.  Meetings  may  be  held  either  within  or  outside  the  State  of  Delaware.  Notice  thereof,  stating  the  place,  date  and  time  of  each  such  special  meeting  shall 
 be  given  each  Director  by  whom  it  is  not  waived  by  mailing  written  notice  not  less  than  four  (4)  days  before  the  meeting  or  personally  by  telephone,  or  electronic  mail,  facsimile  transmission  of  notice,  or  by 
 similar  means  of  communication  not  less  than  12  hours  before  the  meeting  or  on  such  shorter  notice  as  the  person  or  persons  calling  the  meeting  may  deem  necessary  and  appropriate  under  the  circumstances. 
 Unless  otherwise  indicated  in  the  notice  thereof,  any  and  all  business  may  be  transacted  at  a  special  meeting. 


 Section  7.  Quorum. 
 Except  as  may  be  otherwise  provided  by  applicable  law,  the  Certificate  of  Incorporation  or  these  By-  Laws,  at  all  meetings  of  the  Board,  a  majority  of  the  entire  Board  shall  constitute  a  quorum 
 for  the  transaction  of  business.  The  act  of  a  majority  of  the  Directors  present  at  any  meeting  at  which  there  is  a  quorum  shall  be  the  act  of  the  Board.  The  Directors  present  thereat  may  adjourn  the  meeting 
 from  time  to  time,  without  notice  other  than  announcement  at  the  meeting,  until  a  quorum  shall  be  present. 


 Section  8.  Participation  in  Meetings  by  Conference  Telephone. 
 Members  of  the  Board,  or  of  any  committee  thereof,  may  participate  in  a  meeting  of  such  Board  or  committee  by  means  of  conference  telephone  or  similar  communications  equipment  by  means  of 
 which  all  persons  participating  in  the  meeting  can  hear  each  other  and  such  participation  shall  constitute  presence  in  person  at  such  meeting. 


 Section  9.  Conduct  of  Business;  Action  by  Written  Consent. 
 At  any  meeting  of  the  Board,  business  shall  be  transacted  in  such  manner  as  the  Board  may  from  time  to  time  determine,  and  all  matters  shall  be  determined  by  the  vote  of  a  majority  of  the 
 Directors  present,  except  as  otherwise  provided  herein  or  required  by  law.  The  Board  may  take  action 
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 without  a  meeting  if  all  members  thereof  consent  thereto  in  writing,  and  the  writing  or  writings  are  filed  with  the  minutes  of  proceedings  of  the  Board. 
 Section  10.  Powers. 
 The  property,  business  and  affairs  of  the  Corporation  shall  be  managed  by  or  under  the  direction  of  the  Board  which  may  exercise  all  such  powers  of  the  Corporation  and  do  all  such  lawful  acts 
 and  things  as  are  not  by  statute  or  by  the  Certificate  of  Incorporation  or  by  these  By-  Laws  directed  or  required  to  be  exercised  or  done  by  the  stockholders  of  the  Corporation,  including,  without  limiting  the 
 generality  of  the  foregoing,  the  unqualified  power:  (1)  To  declare  dividends  from  time  to  time  in  accordance  with  law; 


 (2)  To  purchase  or  otherwise  acquire  any  property,  rights  or  privileges  on  such  terms  as  it  shall  determine; 
 (3)  To  authorize  the  creation,  making  and  issuance,  in  such  form  as  it  may  determine,  of  written  obligations  of  every  kind,  negotiable  or  non-  negotiable,  secured  or  unsecured,  and 
 to  do  all  things  necessary  in  connection  therewith; 
 (4)  To  remove  any  officer  of  the  Corporation  with  or  without  cause,  and  from  time  to  time  to  devolve  the  powers  and  duties  of  any  officer  upon  any  other  person  for  the  time 
 being;  (5)  To  confer  upon  any  officer  of  the  Corporation  the  power  to  appoint, 
 remove  and  suspend  subordinate  officers,  employees  and  agents; 
 (6)  To  adopt  from  time  to  time  such  stock  option,  stock  purchase,  bonus  or  other  compensation  plans  for  Directors,  officers,  employees  and  agents  of  the  Corporation  and  its 
 Subsidiaries  as  it  may  determine; 
 (7)  To  adopt  from  time  to  time  such  insurance,  retirement,  and  other  benefit  plans  for  Directors,  officers,  employees  and  agents  of  the  Corporation  and  its  Subsidiaries  as  it  may 
 determine;  and 
 (8)  To  adopt  from  time  to  time  regulations,  not  inconsistent  with  these  By-Laws,  for  the  management  of  the  Corporations  business  and  affairs. 


 Section  11.  Compensation  of  Directors. 
 Unless  otherwise  restricted  by  the  Certificate  of  Incorporation,  the  Board  shall  have  the  authority  to  fix  the  compensation  of  the  Directors.  The  Directors  may  be  paid  their  expenses,  if  any,  of 
 attendance  at  each  meeting  of  the  Board  and  may  be  paid  a  fixed  sum  for  attendance  at  each  meeting  of  the  Board  or  paid  a  stated  salary  or  paid  other  compensation  as  Director.  No  such  payment  shall  preclude 
 any  Director  from  serving  the  Corporation  in  any  other  capacity  and  receiving  compensation  therefor.  Members  of  special  or  standing  committees  may  be  allowed  like  compensation  for  attending  committee 
 meetings. 
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 Section  12.  Removal;  Employee  Director  Removal. 
 (a)  Except  as  otherwise  provided  by  the  Certificate  of  Incorporation,  any  Director  may  be  removed  from  office  with  or  without  cause  but  only  by  the  affirmative  vote  of  the 
 holders  of  a  majority  of  the  combined  voting  power  of  the  then  outstanding  shares  of  stock  of  the  Corporation  entitled  to  vote  for  the  election  of  Directors,  voting  together  as  a  single  class. 


 (b)  Notwithstanding  anything  set  forth  in  this  Section  12,  unless  otherwise  determined  by  the  Board,  an  Employee  Director  shall  cease  to  be  qualified  to  serve  as  a  Director  and  shall 
 automatically  be  removed  from  office  (an  Employee  Director  Removal)  without  any  action  on  the  part  of  the  stockholders  or  the  other  members  of  the  Board,  if  such  person  ceases  to  be  an  employee  of  the 
 Corporation  or  any  one  of  its  Subsidiaries,  with  the  removal  of  such  Director  to  take  place  upon  the  earliest  of  (i)  such  Directors  cessation  of  employment,  (ii)  delivery  by  such  Employee  Director  to  the 
 Corporation,  or  such  Subsidiary  or  Subsidiaries,  as  the  case  may  be,  of  a  notice  of  resignation  of  employment,  or  (iii)  delivery  by  the  Corporation  or  one  of  its  Subsidiaries,  as  the  case  may  be,  to  such 
 Employee  Director  of  a  notice  of  termination  of  employment. 
 Section  13.  Special  Election  or  Appointment. 
 Notwithstanding  anything  to  the  contrary  contained  in  Section  3  and  Section  4  of  this  Article  II,  any  Directors  elected  or  appointed  (including  to  fill  a  vacancy  due  to  the  increase  of  the  size  of 
 the  Board),  in  accordance  with  Exhibit  A  to  the  Merger  Agreement  (or  otherwise  agreed  upon  by  and  among  the  parties  to  the  Merger  Agreement)  so  as  to  take  office  not  later  than  immediately  following  the 
 Merger  Effective  Time  (as  defined  in  the  Merger  Agreement),  shall  be  deemed  to  be  validly  elected  and  appointed  irrespective  of  the  provisions  of  the  above  referenced  Sections. 


 COMMITTEES 
 Section  1.  Committees  of  the  Board. 
 The  Board,  by  a  vote  of  a  majority  of  the  entire  Board  then  in  office,  may  from  time  to  time  designate  committees  of  the  Board,  with  such  lawfully  delegable  powers  and  duties  as  it  thereby 
 confers,  to  serve  at  the  pleasure  of  the  Board  and  shall,  for  those  committees  and  any  others  provided  for  herein,  elect  a  Director  or  Directors  to  serve  as  the  member  or  members,  designating,  if  it  desires,  other 
 Directors  as  alternate  members  who  may  replace  any  absent  or  disqualified  member  at  any  meeting  of  the  committee.  In  the  absence  or  disqualification  of  any  member  of  any  committee  and  any  alternate  member 
 in  his  or  her  place,  the  member  or  members  of  the  committee  present  at  the  meeting  and  not  disqualified  from  voting,  whether  or  not  he  or  she  or  they  constitute  a  quorum,  may  by  unanimous  vote  appoint 
 another  member  of  the  Board  to  act  at  the  meeting  in  the  place  of  the  absent  or  disqualified  member.  Notwithstanding  the  foregoing  provisions  of  this  Section  if  either  (A)  required  by  the  applicable  rules  and 
 regulations  of  the  New  York  Stock  Exchange  or  the  Securities  and  Exchange  Commission  (in  each  case,  as  may  be  amended  from  time  to  time)  or  (B)  under  the  Certificate  of  Incorporation  the  Board  is  required 
 to  consist  of  a  majority  of  Independent  Directors,  then  from  and  after  the  Merger  Effective  Time,  and  for  so  long  as  the  conditions  in  clauses  (A)  or  (B)  above  are  satisfied,  the  Standing  Committees  (as  defined 
 herein),  shall  at  all  such  times  consist  solely  of  Independent  Directors,  except  as  otherwise  provided  by  these  By-  Laws.  Without  limiting  the  foregoing,  the  Board  shall  designate  the  following  committees  (the 
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 Standing  Committees):  Audit  Committee,  Nominating  /  Corporate  Governance  Committee  and  Compensation  Committee. 
 Section  2.  Conduct  of  Business. 
 Any  committee,  to  the  extent  allowed  by  law  and  provided  in  the  resolution  establishing  such  committee,  shall  have  and  may  exercise  all  the  duly  delegated  powers  and  authority  of  the  Board  in 
 the  management  of  the  business  and  affairs  of  the  Corporation.  The  Board  shall  have  the  power  to  prescribe  the  manner  in  which  proceedings  of  any  such  committee  shall  be  conducted.  In  the  absence  of 
 any  such  prescription,  such  committee  shall  have  the  power  to  prescribe  the  manner  in  which  its  proceedings  shall  be  conducted.  Unless  the  Board  or  such  committee  shall  otherwise  provide,  regular  and 
 special  meetings  and  other  actions  of  any  such  committee  shall  be  governed  by  the  provisions  of  Article  II  applicable  to  meetings  and  actions  of  the  Board.  Each  committee  shall  keep  regular  minutes  and  report  to 
 the  Board  when  required. 
 Section  3.  Audit  Committee. 
 (a)  The  Audit  Committee  shall  have  at  least  three  (3)  members. 
 (b)  The  Audit  Committee  shall  have  such  responsibilities,  and  such  powers  and  authority,  as  are  required  under  the  rules  and  regulations  of  the  New  York  Stock  Exchange, 
 applicable  law  and  the  rules  and  regulations  of  the  Securities  and  Exchange  Commission,  or  as  are  normally  incident  to  the  functions  of  an  audit  committee  (including  authority  to  retain  counsel  and 
 consultants  to  assist  it  in  carrying  out  its  responsibilities)  or  as  may  be  determined  by  the  Board. 
 (c)  The  Audit  Committee  shall  have  the  sole  authority  on  behalf  of  the  Corporation  to  assert,  defend  or  settle  any  claims  under  and  relating  to  any  Acquisition-  Related 
 Agreement,  except  as  may  be  expressly  provided  in  Section  9.4(  f)  of  the  Stock  Purchase  Agreement. 
 (d)  The  Audit  Committee  shall  have  sole  authority  to  review,  consider  and  pass  upon  any  Related  Party  Transaction,  and  no  such  transaction  shall  be  effected  without  the  approval 
 of  or  authorization  of  a  majority  of  the  Audit  Committee,  provided  that  the  committee  may  ratify  any  such  transaction. 


 (e)  The  Audit  Committee  shall  have  the  powers  to  (i)  engage  advisers  at  the  reasonable  expense  of  the  Corporation  to  assist  in  its  review  and  decision  regarding  any  matter  including 
 any  Related  Party  Transaction;  (ii)  utilize  internal  Corporation  resources,  including  requiring  the  assistance  of  an  executive  employee  of  the  Corporation;  and  (iii)  review  Corporation  contracts,  books  and 
 records. 
 (f)  The  Audit  Committee  may  have  additional  responsibilities  as  shall  be  set  forth  in  the  Audit  Committee  Charter  from  time  to  time. 


 (g)  Until  such  time  as  the  United  States  Department  of  Justice,  Federal  Bureau  of  Investigation,  and  the  United  States  Department  of  Homeland  Security  confirm  to  the 
 Corporation  in  writing  that  the  following  provisions  need  no  longer  apply,  then 
 (i)  All  members  of  the  Audit  Committee  shall  be  United  States  citizens. 
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 (ii)  The  Audit  Committee  shall  have  sole  authority  over  the  establishment,  oversight  and  evolution  of  policies,  practices  and  procedures  related  to  or  materially 
 affecting  the  Corporations  actions  concerning  (a)  requests  from  a  Foreign  government  or  other  Foreign  entity  to  conduct  electronic  surveillance  using  the  domestic  communications  network  or  to  obtain 
 information  relating  to  domestic  communications  or  electronic  surveillance  conducted  using  the  domestic  communications  network,  (b)  requests  or  directives  from  a  Foreign  government  or  other  Foreign  entity  to 
 alter,  affect  or  obtain  information  about  the  operations,  security,  personnel  or  infrastructure  of  the  domestic  communications  network,  (c)  any  decision  by  the  Corporation  involving  document  preservation 
 requests  from  any  government  agency  in  the  United  States  related  to  the  domestic  communications  network,  where  those  decisions  relate  to  Foreign  laws  or  requests  from  a  Foreign  government  or  other 
 Foreign  entity,  (d)  any  requests  or  directives  from  a  Foreign  government  or  other  Foreign  entity  relating  to  the  preservation,  storage,  retention  or  destruction  of  documents  related  to  the  domestic  communications 
 network,  (e)  any  attempt  by  a  Foreign  government  or  other  Foreign  entity  to  induce  an  employee  of  the  Corporation  to  violate  United  States  law,  and  (f)  any  decision  by  the  Corporation  relating  to  compliance 
 with  lawful  U.  S.  process  where  Foreign  laws  or  requests  from  a  Foreign  government  or  other  Foreign  entity  may  be  a  factor.  For  the  purposes  of  this  subsection  only,  the  term  Foreign  means  non-  U.  S.;  and 
 the  term  domestic  communications  means  (x)  wire  communications  or  electronic  communications  (whether  stored  or  not)  from  one  U.  S.  location  to  another  U.  S.  location  and  (y)  the  U.  S.  portion  of  a  wire 
 communication  or  electronic  communication  (whether  stored  or  not)  that  originates  or  terminates  in  the  United  States. 


 For  the  purposes  of  this  Section  3  only,  Related  Party  Transaction  means  any  transaction  or  series  of  transactions  between  the  Corporation  or  any  of  its  subsidiaries  on  the  one  hand,  and  another  party  or 
 parties  on  the  other  hand,  in  such  amounts  and  related  to  such  matters  that  the  Audit  Committee  determines  could  be  considered  an  interested  transaction  between  the  Company  or  its  subsidiaries  and 
 such  other  party  or  parties. 
 Section  4.  Compensation  Committee. 
 (a)  The  Compensation  Committee  shall  be  composed  of  at  least  three  (3)  Directors.  The  Compensation  Committee  shall  have  the  power  and  authority  to  approve,  adopt  and 
 implement  the  incentive,  stock  option  and  similar  plans  of  the  Corporation  and  its  Subsidiaries.  The  Compensation  Committee  shall  have  the  power  to  approve,  disapprove,  modify  or  amend  all  plans 
 designed  and  intended  to  provide  compensation  primarily  for  officers  of  the  Corporation.  The  Compensation  Committee  shall  review,  fix  and  determine  from  time  to  time  the  salaries  and  other 
 remunerations  of  all  officers  of  the  Corporation. 
 (b)  The  Compensation  Committee  shall  have  such  powers  and  authority  as  necessary  to  carry  out  the  foregoing  responsibilities  and  shall  have  such  other  responsibilities,  and  such 
 other  powers  and  authority,  as  may  be  determined  by  the  Board. 
 (c)  The  Compensation  Committee  may  have  additional  responsibilities  as  shall  be  set  forth  in  the  Compensation  Committee  Charter  from  time  to  time. 


 Section  5.  Nominating  /  Corporate  Governance  Committee. 
 (a)  The  Nominating  /  Corporate  Governance  Committee  shall  be  composed  of  at  least  three  (3)  Directors.  The  Nominating  /  Corporate  Governance  Committee  shall  have  the  full  and 
 exclusive  power  and  authority  to  evaluate  Director  candidates  for  election  to  the  Board  and  committees  of 
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 the  Board,  to  nominate  Directors  for  election  to  the  Board  at  any  annual  or  special  meeting  of  stockholders.  The  Committee  shall  also  be  responsible  for  matters  related  to  service  on  the  Board,  and 
 associated  issues  of  corporate  governance. 
 (b)  The  Nominating  /  Corporate  Governance  Committee  shall  have  such  powers  and  authority  as  necessary  to  carry  out  the  foregoing  responsibilities  and  shall  have  such  other 
 responsibilities,  and  such  other  powers  and  authority,  as  may  be  determined  by  the  Board. 
 (c)  The  Nominating  /  Corporate  Governance  Committee  may  have  additional  responsibilities  as  shall  be  set  forth  in  the  Nominating  /  Corporate  Governance  Committee 
 Charter  from  time  to  time. 


 OFFICERS 
 Section  1.  General. 
 The  officers  of  the  Corporation  shall  be  elected  by  the  Board  and  shall  be  a  Chairman  of  the  Board  (who  must  be  a  Director),  a  President  (who  shall  also  be  the  Chief  Executive  Officer),  a 
 Secretary  and  a  Treasurer.  The  Board,  in  its  sole  discretion,  may  also  choose  one  or  more  Vice  Chairmen,  Senior  Executive  Vice  Presidents,  Executive  Vice  Presidents,  Senior  Vice  Presidents,  Vice  Presidents, 
 Assistant  Secretaries,  Assistant  Treasurers  and  other  officers.  Any  number  of  offices  may  be  held  by  the  same  person,  unless  otherwise  prohibited  by  law,  the  Certificate  of  Incorporation  or  these  By-  Laws.  The 
 Board  may,  from  time  to  time,  delegate  the  powers  or  duties  of  any  officer  to  any  other  officers  or  agents,  notwithstanding  any  contrary  provision  hereof. 


 Section  2.  Election;  Removal. 
 The  Board  at  its  first  meeting  held  after  each  Annual  Meeting  of  stockholders  shall  elect  the  officers  of  the  Corporation  who  shall  hold  their  offices  for  such  terms  and  shall  exercise  such  powers 
 and  perform  such  duties  as  shall  be  determined  from  time  to  time  solely  by  the  Board,  which  determination  may  be  by  resolution  of  the  Board  or  in  any  By-  Law  provisions  duly  adopted  or  approved 
 by  the  Board  and  all  officers  of  the  Corporation  shall  hold  office  until  their  successors  are  chosen  and  qualified,  or  until  their  earlier  resignation  or  removal.  The  salaries  of  the  officers  elected  by  the  Board 
 shall  be  fixed  from  time  to  time  by  the  Board  or  by  such  officers  as  may  be  designated  by  resolution  of  the  Board,  upon  recommendation  or  action  of  the  Compensation  Committee.  Any  officer  elected  by  the 
 Board  may  be  removed  at  any  time  by  the  Board  with  or  without  cause.  Only  the  Board  may  fill  any  vacancy  occurring  in  any  office  of  the  Corporation. 


 Section  3.  Chairman  of  the  Board. 
 The  Chairman  of  the  Board  shall  be  initially  appointed  in  accordance  with  the  Merger  Agreement,  shall  preside  at  all  meetings  of  the  Board  and  of  stockholders  (unless  the  Board  designates 
 another  person)  and,  except  where  by  applicable  law  the  signature  of  the  President  is  required,  the  Chairman  of  the  Board  shall  possess  the  same  power  as  the  President  to  sign  all  contracts,  certificates  and 
 other  instruments  of  the  Corporation  which  may  be  authorized  by  the  Board.  The  Chairman  of  the  Board  shall  also  perform  such  other  duties  and  may  exercise  such  other  powers  as  may  from  time  to  time  be 
 assigned  by  these  By-  Laws  or  by  the  Board. 
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 Section  4.  Vice  Chairmen  of  the  Board. 
 The  Vice  Chairmen,  if  such  are  appointed  by  the  Board,  shall  report  and  be  responsible  to  the  Chairman  of  the  Board  or,  if  the  Board  so  directs,  the  President  and  Chief  Executive  Officer.  The 
 Vice  Chairmen  shall  have  such  powers  and  perform  such  duties  as  from  time  to  time  may  be  assigned  or  delegated  to  him  or  her  by  the  Board  or  are  incident  to  the  office  of  Vice  Chairman.  During  the  absence, 
 disability,  or  at  the  request  of  the  Chairman  of  the  Board,  a  Vice  Chairman  shall  perform  the  duties  and  exercise  the  powers  of  the  Chairman  of  the  Board.  In  the  absence  or  disability  of  both  the  Vice  Chairmen 
 and  the  Chairman  of  the  Board,  the  President  or  another  person  designated  by  the  Board  shall  perform  the  duties  and  exercise  the  powers  of  the  Vice  Chairmen,  and  unless  otherwise  determined  by  the  Board,  the 
 duties  and  powers  of  the  Chairman. 
 Section  5.  President  and  Chief  Executive  Officer. 
 The  President  shall  report  and  be  responsible  to  the  Board  and  shall  be  initially  appointed  in  accordance  with  the  Merger  Agreement.  The  President  shall  be  the  Chief  Executive  Officer  of  the 
 Corporation  and  shall  have  general  supervision  of  the  business  of  the  Corporation  and  shall  have  the  authority  to  see  that  all  orders  and  resolutions  of  the  Board  are  carried  into  effect  and  shall  have  such 
 powers  and  perform  such  duties  as  from  time  to  time  may  be  assigned  or  delegated  to  him  or  her  by  the  Board  or  are  incident  to  the  office  of  President.  During  the  absence  or  disability  of  the  Vice  Chairman  (if 
 there  be  one  so  appointed),  or  at  the  request  of  the  Chairman  of  the  Board,  the  President  shall  perform  the  duties  and  exercise  the  powers  of  the  Vice  Chairman  of  the  Board.  During  the  absence  or  disability  of  the 
 Chairman  of  the  Board  and  the  Vice  Chairman,  or  at  the  request  of  the  Chairman  of  the  Board,  the  President  shall  perform  the  duties  and  exercise  the  powers  of  the  Vice  Chairman  and  the  Chairman  of  the 
 Board.  In  the  absence  or  disability  of  the  President,  the  person  designated  by  the  Board  shall  perform  the  duties  and  exercise  the  powers  of  the  President,  and  unless  otherwise  determined  by  the  Board,  the  duties 
 and  powers  of  the  Vice  Chairman. 
 Section  6.  Senior  Executive  Vice  Presidents. 
 The  Senior  Executive  Vice  Presidents  shall  have  such  powers  and  perform  such  duties  as  from  time  to  time  may  be  prescribed  for  them  respectively  by  the  Board  or  are  incident  to  the  office  of 
 Senior  Executive  Vice  President. 
 Section  7.  Executive  Vice  Presidents. 
 The  Executive  Vice  Presidents  shall  have  such  powers  and  perform  such  duties  as  from  time  to  time  may  be  prescribed  for  them  respectively  by  the  Board  or  are  incident  to  the  office  of 
 Executive  Vice  President. 
 Section  8.  Senior  Vice  Presidents. 
 The  Senior  Vice  Presidents  shall  have  such  powers  and  perform  such  duties  as  from  time  to  time  may  be  prescribed  for  them  respectively  by  the  Board  or  are  incident  to  the  office  of  Senior  Vice 
 President.  Section  9.  Vice  Presidents. 
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 The  Vice  Presidents  shall  have  such  powers  and  perform  such  duties  as  from  time  to  time  may  be  prescribed  for  them  respectively  by  the  Board  or  are  incident  to  the  office  of  Vice  President. 
 Section  10.  Secretary. 
 The  Secretary  shall  keep  or  cause  to  be  kept,  at  the  principal  executive  office  of  the  Corporation  or  such  other  place  as  the  Board  may  order,  a  book  of  minutes  of  all  meetings  of 
 stockholders,  the  Board  and  its  committees,  with  the  time  and  place  of  holding,  whether  regular  or  special,  and  if  special,  how  authorized,  the  notice  thereof  given,  the  names  of  those  present  at  Board  and 
 committee  meetings,  the  number  of  shares  present  or  represented  at  stockholders  meetings,  and  the  proceedings  thereof.  The  Secretary  shall  keep,  or  cause  to  be  kept,  a  copy  of  the  By-  Laws  of  the 
 Corporation  at  the  principal  executive  office  of  the  Corporation  or  such  other  place  as  the  Board  may  order. 


 The  Secretary  shall  keep,  or  cause  to  be  kept,  at  the  principal  executive  office  of  the  Corporation  or  at  the  office  of  the  Corporations  transfer  agent  or  registrar,  if  one  be  appointed,  a  stock 
 register,  or  a  duplicate  stock  register,  showing  the  names  of  the  stockholders  and  their  addresses,  the  number  and  classes  of  shares  held  by  each,  the  number  and  date  of  certificates  issued  for  the  same,  and 
 the  number  and  date  of  cancellation  of  every  certificate  surrendered  for  cancellation. 
 The  Secretary  shall  give,  or  cause  to  be  given,  notice  of  all  meetings  of  the  stockholders,  and  of  the  Board  and  any  committees  thereof  required  by  these  By-  Laws  or  by  law  to  be  given,  shall  keep 
 the  seal  of  the  Corporation  in  safe  custody  and  shall  have  such  other  powers  and  perform  such  other  duties  as  may  be  prescribed  by  the  Board. 


 Section  11.  Treasurer. 
 The  Treasurer  shall  have  custody  of  the  corporate  funds  and  securities  of  the  Corporation  and  shall  keep  and  maintain,  or  cause  to  be  kept  and  maintained,  adequate  and  correct  accounts  of  the 
 properties  and  business  transactions  of  the  Corporation,  and  shall  send  or  cause  to  be  sent  to  the  stockholders  of  the  Corporation  such  financial  statements  and  reports  as  are  required  by  law  or  these  By-Laws 
 to  be  sent  to  them. 
 The  Treasurer  shall  deposit  all  monies  and  valuables  in  the  name  and  to  the  credit  of  the  Corporation  with  such  depositories  as  may  be  designated  by  the  Board.  The  Treasurer  shall  disburse  the 
 funds  of  the  Corporation  as  may  be  ordered  by  the  Board,  shall  render  to  the  President  and  the  Board,  whenever  they  request  it,  an  account  of  all  transactions  and  of  the  financial  condition  of  the  Corporation, 
 and  shall  have  such  other  powers  and  perform  such  other  duties  as  may  be  prescribed  by  the  Board. 
 Section  12.  Other  Officers. 
 Such  other  officers  or  assistant  officers  as  the  Board  may  designate  shall  perform  such  duties  and  have  such  powers  as  from  time  to  time  may  be  assigned  to  them  by  the  Board.  The  Board  may 
 delegate  to  any  other  officer  of  the  Corporation  the  power  to  choose  such  other  officers  and  to  prescribe  their  respective  duties  and  powers. 


 Section  13.  Execution  of  Contracts  and  Other  Documents. 
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 Each  officer  of  the  Corporation  may  execute,  affix  the  corporate  seal  and/  or  deliver,  in  the  name  and  on  behalf  of  the  Corporation,  deeds,  mortgages,  notes,  bonds,  contracts,  agreements,  powers 
 of  attorney,  guarantees,  settlements,  releases,  evidences  of  indebtedness,  conveyances,  or  any  other  document  or  instrument  which  is  authorized  by  the  Board  or  is  required  to  be  executed  in  the  ordinary 
 course  of  business  of  the  Corporation,  except  in  cases  where  the  execution,  affixation  of  the  corporate  seal  and/  or  delivery  thereof  shall  be  expressly  and  exclusively  delegated  by  the  Board  to  some  other  officer  or 
 agent  of  the  Corporation. 
 Section  14.  Action  with  Respect  to  Securities  of  Other  Corporations. 
 Powers  of  attorney,  proxies,  waivers  of  notice  of  meeting,  consents  and  other  instruments  relating  to  securities  owned  by  the  Corporation  may  be  executed  in  the  name  of  and  on  behalf  of  the 
 Corporation  by  the  Chairman  of  the  Board  or  the  President  or  any  other  officer  or  officers  authorized  by  the  Board,  the  Chairman  of  the  Board  or  the  President,  and  any  such  officer  may,  in  the  name  of  and  on 
 behalf  of  the  Corporation,  vote,  represent  and  exercise  on  behalf  of  the  Corporation  all  rights  incident  to  any  and  all  shares  of  any  other  corporation  and  take  all  such  action  as  any  such  officer  may  deem 
 advisable  to  vote  in  person  or  by  proxy  at  any  meeting  of  security  holders  of  any  corporation  in  which  the  Corporation  may  own  securities  and  at  any  such  meeting  shall  possess  and  may  exercise  any  and  all  rights 
 and  power  incident  to  the  ownership  of  such  securities  and  which,  as  the  owner  thereof,  the  Corporation  might  have  exercised  and  possessed  if  present.  The  Board  may,  by  resolution  from  time  to  time,  confer 
 like  powers  upon  any  other  person  or  persons. 


 STOCK 
 Section  1.  Certificates  of  Stock. 
 The  interest  of  each  stockholder  of  the  Corporation  shall  be  evidenced  by  certificates  for  shares  of  stock  in  such  form  as  the  appropriate  officers  of  the  Corporation  may  from  time  to  time 
 determine,  provided  that  the  Board  may  provide  by  resolution  or  resolutions  that  some  or  all  of  any  or  all  classes  or  series  of  the  stock  of  the  Corporation  shall  be  represented  by  uncertificated  shares. 
 Notwithstanding  the  adoption  of  such  a  resolution  or  resolutions  by  the  Board,  each  stockholder  shall  be  entitled,  upon  request,  to  a  certificate  certifying  the  number  of  shares  owned  by  him  or  her  and  signed  in 
 the  name  of  the  Corporation  (i)  by  the  Chairman  or  Vice  Chairman  of  the  Board,  the  President  or  any  Executive  Vice  President,  Senior  Vice  President  or  Vice  President  and  (ii)  by  the  Secretary  or  an 
 Assistant  Secretary,  or  the  Treasurer  or  an  Assistant  Treasurer.  Where  a  certificate  is  countersigned  by  (i)  a  transfer  agent  or  (ii)  a  registrar,  any  other  signature  on  the  certificate  may  be  a  facsimile.  In  case  any 
 officer,  transfer  agent  or  registrar  whose  signature  appears  on  the  certificate  shall  have  ceased  to  be  such  officer,  transfer  agent  or  registrar  before  such  certificate  is  issued,  it  may  be  issued  by  the  Corporation 
 with  the  same  effect  as  if  he  or  she  were  such  officer,  transfer  agent  or  registrar  at  the  date  of  issue.  Except  as  expressly  provided  by  law,  the  rights  and  obligations  of  the  holders  of  uncertificated  shares  and 
 the  rights  and  obligations  of  the  holders  of  certificates  representing  stock  of  the  same  class  and  series  shall  be  identical. 


 Section  2.  Transfers  of  Stock. 
 Transfers  of  shares  of  capital  stock  of  the  Corporation  shall  be  made  only  on  the  stock  record  of  the  Corporation  by  the  holder  of  record  thereof  or  by  his,  her  or  its  attorney  thereunto 
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 authorized  by  the  power  of  attorney  duly  executed  and  filed  with  the  Secretary  of  the  Corporation  or  the  transfer  agent  thereof,  and,  in  the  case  of  certificated  shares,  only  on  surrender  of  the  certificate  or 
 certificates  representing  such  shares,  properly  endorsed  or  accompanied  by  a  duly  executed  stock  transfer  power.  Upon  receipt  of  proper  transfer  instructions  from  the  registered  owner  of  uncertificated  shares, 
 such  uncertificated  shares  shall  be  cancelled  and  issuance  of  new  equivalent  uncertificated  shares  or  certificated  shares  shall  be  made  to  the  person  entitled  thereto  and  the  transaction  shall  be  recorded  in  the 
 books  of  the  Corporation.  Registration  of  transfer  of  any  shares  shall  be  subject  to  applicable  provisions  of  the  Certificate  of  Incorporation  and  applicable  law  with  respect  to  the  transfer  of  such  shares.  The 
 Board  may  make  such  additional  rules  and  regulations  as  it  may  deem  expedient  concerning  the  issue  and  transfer  of  certificates  representing  shares  of  the  capital  stock  of  the  Corporation. 


 Section  3.  Record  Date. 
 (a)  In  order  that  the  Corporation  may  determine  the  stockholders  entitled  to  notice  of  or  to  vote  at  any  meeting  of  stockholders  or  any  adjournment  thereof,  or  entitled  to  receive 
 payment  of  any  dividend  or  other  distribution  or  allotment  of  any  rights,  or  entitled  to  exercise  any  rights  in  any  other  lawful  action,  the  Board  may  fix,  in  advance,  a  record  date  in  respect  of  such  meeting,  which 
 record  date  shall  not  be  more  than  60  nor  less  than  10  days  before  the  date  of  such  meeting;  provided,  however,  that  if  no  record  date  is  fixed  by  the  Board,  the  record  date  for  determining  stockholders  entitled 
 to  notice  of  or  to  vote  at  a  meeting  of  stockholders  shall  be  at  the  close  of  business  on  the  day  next  preceding  the  day  on  which  notice  is  given  or,  if  notice  is  waived,  at  the  close  of  business  on  the  day  next 
 preceding  the  day  on  which  the  meeting  is  held,  and,  for  determining  stockholders  entitled  to  receive  payment  of  any  dividend  or  other  distribution  or  allotment  of  rights  or  to  exercise  any  rights  of  change, 
 conversion  or  exchange  of  stock  or  for  any  other  purpose,  the  record  date  shall  be  at  the  close  of  business  on  the  day  on  which  the  Board  adopts  a  resolution  relating  thereto.  A  determination  of  stockholders  of 
 record  entitled  to  notice  of  or  to  vote  at  a  meeting  of  stockholders  shall  apply  to  any  adjournment  of  the  meeting;  provided,  however,  that  the  Board  may  fix  a  new  record  date  for  the  adjourned  meeting. 


 (b)  Notwithstanding  Section  3(  a)  of  this  Article  V,  the  record  date  for  determining  stockholders  entitled  to  express  consent  to  corporate  action  in  writing  without  a  meeting  shall 
 be  as  fixed  by  the  Board  or  as  otherwise  established  under  this  Section  3(  b).  Any  person  seeking  to  have  the  stockholders  authorize  or  take  corporate  action  by  written  consent  without  a  meeting  shall,  by  written 
 notice  addressed  to  the  Secretary  and  delivered  to  the  Corporation,  request  that  a  record  date  be  fixed  for  such  purpose.  The  Board  may  fix  a  record  date  for  such  purpose,  which  shall  be  no  more  than  10  days 
 after  the  date  upon  which  the  resolution  fixing  the  record  date  is  adopted  by  the  Board  and  shall  not  precede  the  date  such  resolution  is  adopted.  If  the  Board  fails  within  10  days  after  the  Corporation 
 receives  such  notice  to  fix  a  record  date  for  such  purpose,  the  record  date  shall  be  the  day  on  which  the  first  written  consent  is  delivered  to  the  Corporation  in  the  manner  described  in  Section  3(  c)  below  unless 
 prior  action  by  the  Board  is  required  under  the  DGCL,  in  which  event  the  record  date  shall  be  at  the  close  of  business  on  the  day  on  which  the  Board  adopts  the  resolution  taking  such  prior  action. 


 (c)  Every  written  consent  purporting  to  take  or  authorizing  the  taking  of  corporate  action  and/  or  revocations  (each  such  written  consent  and  related  revocation  is  referred  to  in  this 
 Section  3(  c)  as  a  Consent)  shall  bear  the  date  of  signature  of  each  stockholder  who  signs  the  Consent,  and  no  Consent  shall  be  effective  to  take  the  corporate  action  referred  to  therein  unless,  within  60  days  of 
 the  earliest  dated  Consent  delivered  in  the  manner  required  by  this  Section  3(  c),  Consents  signed  by  a  sufficient  number  of  stockholders  to  take  such  action  are  so  delivered  to  the  Corporation.  A  Consent  shall 
 be  delivered  to  the  Corporation  by  delivery  to  its  registered  office  in  the  State  of  Delaware,  its  principal  place  of  business,  or  an  officer  or  agent  of  the  Corporation  having  custody  of  the  book  in  which 
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 proceedings  of  meetings  of  stockholders  are  recorded.  Delivery  to  the  Corporations  registered  office,  to  its  principal  place  of  business  or  to  such  officer  or  agent  shall  be  made  by  hand  or  by  certified  or 
 registered  mail,  return  receipt  requested.  In  the  event  of  the  delivery  to  the  Corporation  of  a  Consent,  the  Secretary  of  the  Corporation  shall  provide  for  the  safe-  keeping  of  such  consent  and  shall  promptly 
 conduct  such  ministerial  review  of  the  sufficiency  of  the  Consents  and  of  the  validity  of  the  action  to  be  taken  by  stockholder  consent  as  he  or  she  deems  necessary  or  appropriate,  including,  without  limitation, 
 whether  the  holders  of  a  number  of  shares  having  the  requisite  voting  power  to  authorize  or  take  the  action  specified  in  the  Consent  have  given  consent;  provided,  however,  that  if  the  corporate  action  to 
 which  the  Consent  relates  is  the  removal  or  replacement  of  one  or  more  members  of  the  Board,  the  Secretary  or  the  Corporation  shall  promptly  designate  two  persons  who  shall  not  be  members  of  the 
 Board,  to  serve  as  inspectors  with  respect  to  such  Consent  and  such  inspectors  shall  discharge  the  functions  of  the  Secretary  of  the  Corporation  under  this  Section  3(  c).  If  the  Certificate  of  Incorporation 
 provides  for  the  issuance  of  any  class  or  series  of  stock  which  is  convertible  into  any  other  class  or  series  of  stock,  as  a  condition  to  counting  the  votes  cast  by  any  holder  of  shares  at  any  annual  or  special  meeting 
 of  stockholders,  or  in  connection  with  any  Consent  of  stockholders,  the  Board  or  a  duly  authorized  committee  thereof,  in  its  discretion,  may  require  the  holder  of  any  shares  to  furnish  such  affidavits  or 
 other  proof  as  the  Board  or  such  committee  deems  necessary  and  advisable  to  determine  whether  such  shares  have  been  converted  pursuant  to  the  terms  governing  the  issuance  and  conversion  of  such  shares  in 
 the  Certificate  of  Incorporation.  If  after  such  investigation  the  Secretary  or  the  inspectors  (as  the  case  may  be)  shall  determine  that  the  Consent  is  valid  and  that  the  action  therein  specified  has  been  validly 
 authorized,  that  fact  shall  forthwith  be  certified  on  the  records  of  the  Corporation  kept  for  the  purpose  of  recording  the  proceedings  of  meetings  of  stockholders,  and  the  Consent  shall  be  filed  in  such  records,  at 
 which  time  the  Consent  shall  become  effective  as  stockholder  action.  In  conducting  the  investigation  required  by  this  Section  3(  c),  the  Secretary  or  the  inspectors  (as  the  case  may  be)  may,  at  the  expense  of 
 the  Corporation,  retain  special  legal  counsel  and  any  other  necessary  or  appropriate  professional  advisors,  and  such  other  personnel  as  they  may  reasonably  deem  necessary  or  appropriate  to  assist  them,  and  shall 
 be  fully  protected  in  relying  in  good  faith  upon  the  opinion  of  such  counsel  or  advisors. 
 Section  4.  Lost,  Stolen  or  Destroyed  Certificates. 
 The  Board  may  direct  a  new  certificate  to  be  issued  in  place  of  any  certificate  theretofore  issued  by  the  Corporation  alleged  to  have  been  lost,  stolen  or  destroyed,  upon  the  making  of  an  affidavit 
 of  that  fact  by  the  person  claiming  the  certificate  of  stock  to  be  lost,  stolen  or  destroyed.  When  authorizing  such  issue  of  a  new  certificate,  the  Board  may,  in  its  discretion  and  as  a  condition  precedent 
 to  the  issuance  thereof,  require  the  owner  of  such  lost,  stolen  or  destroyed  certificate,  or  his  or  her  legal  representative,  to  advertise  the  same  in  such  manner  as  the  Board  shall  require  and/  or  to  give  the 
 Corporation  a  bond  in  such  sum  as  it  may  direct  as  indemnity  against  any  claim  that  may  be  made  against  the  Corporation  with  respect  to  the  certificate  alleged  to  have  been  lost,  stolen  or  destroyed. 


 Section  5.  Regulations. 
 The  issue,  transfer,  conversion  and  registration  of  certificates  of  stock  shall  be  governed  by  such  other  regulations  as  the  Board  may  establish. 


 Section  6.  Record  Owners. 
 The  Corporation  shall  be  entitled  to  recognize  the  exclusive  right  of  a  person  registered  on  its  books  as  the  owner  of  shares  to  receive  dividends,  and  to  vote  as  such  owner,  and  to  hold  liable  for 
 calls  and  assessments  a  person  registered  on  its  books  as  the  owner  of  shares,  and  shall  not  be  bound  to 
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 recognize  any  equitable  or  other  claim  to  or  interest  in  such  share  or  shares  on  the  part  of  any  other  person,  whether  or  not  it  shall  have  express  or  other  notice  thereof,  except  as  otherwise  provided  by  law. 
 NOTICES 
 Section  1.  Notices. 
 Whenever  written  notice  is  required  by  law,  the  Certificate  of  Incorporation  or  these  By-Laws,  except  as  otherwise  specifically  provided  herein  or  required  by  law,  all  notices  required  to  be  given 
 to  any  stockholder,  Director,  officer,  employee  or  agent  shall  be  in  writing  and  may  in  every  instance  be  effectively  given  by  hand  delivery  to  the  recipient  thereof,  by  depositing  such  notice  in  the  mails,  postage 
 paid,  recognized  overnight  delivery  service  or  by  sending  such  notice  by  facsimile,  receipt  acknowledged,  or  by  prepaid  telegram  or  mailgram.  Any  such  notice  shall  be  addressed  to  such  stockholder,  Director, 
 officer,  employee  or  agent  at  his  or  her  last  known  address  as  the  same  appears  on  the  books  of  the  Corporation.  The  time  when  such  notice  is  received,  if  hand  delivered,  or  dispatched,  if  delivered  through 
 the  mails  or  by  telegram  or  facsimile  shall  be  the  time  of  the  giving  of  the  notice. 
 Section  2.  Waivers. 
 A  written  waiver  of  any  notice,  signed  by  a  stockholder,  Director,  officer,  employee  or  agent,  whether  before  or  after  the  time  of  the  event  for  which  notice  is  to  be  given,  shall  be  deemed 
 equivalent  to  the  notice  required  to  be  given  to  such  stockholder,  Director,  officer,  employee  or  agent.  Neither  the  business  nor  the  purpose  of  any  meeting  need  be  specified  in  such  a  waiver.  Attendance  at 
 any  meeting  shall  constitute  waiver  of  notice  of  such  meeting  except  attendance  for  the  sole  purpose  of  objecting  to  the  timeliness  of  notice. 


 MISCELLANEOUS 
 Section  1.  Facsimile  Signatures. 
 In  addition  to  the  provisions  for  use  of  facsimile  signatures  elsewhere  specifically  authorized  in  these  By-  Laws,  facsimile  signatures  of  any  officer  or  officers  of  the  Corporation  may  be 
 used  whenever  and  as  authorized  by  the  Board  or  a  committee  thereof. 
 Section  2.  Corporate  Seal. 
 The  Board  may  provide  a  suitable  seal,  containing  the  name  of  the  Corporation,  which  seal  shall  be  in  the  charge  of  the  Secretary.  If  and  when  so  directed  by  the  Board  or  a  committee  thereof, 
 duplicates  of  the  seal  may  be  kept  and  used  by  the  Treasurer  or  by  an  Assistant  Secretary  or  Assistant  Treasurer. 


 Section  3.  Reliance  upon  Books,  Reports  and  Records. 
 Each  Director,  each  member  of  any  committee  designated  by  the  Board,  and  each  officer  of  the  Corporation  shall,  in  the  performance  of  his  or  her  duties,  be  fully  protected  in  relying  in  good  faith 
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 upon  the  books  of  account  or  other  records  of  the  Corporation  and  upon  such  information,  opinions,  reports  or  statements  presented  to  the  Corporation  by  any  of  its  officers  or  employees,  or  committees  of 
 the  Board  so  designated,  or  by  any  other  person  as  to  matters  which  such  Director  or  committee  member  reasonably  believes  are  within  such  other  persons  professional  or  expert  competence  and  who  has  been 
 selected  with  reasonable  care  by  or  on  behalf  of  the  Corporation. 
 Section  4.  Fiscal  Year. 
 The  fiscal  year  of  the  Corporation  shall  be  as  fixed  by  the  Board. 


 Section  5.  Time  Periods. 
 In  applying  any  provision  of  these  By-  Laws  which  requires  that  an  act  be  done  or  not  be  done  a  specified  number  of  days  prior  to  an  event  or  that  an  act  be  done  during  a  period  of  a  specified 
 number  of  days  prior  to  an  event,  calendar  days  shall  be  used,  the  day  of  the  doing  of  the  act  shall  be  excluded,  and  the  day  of  the  event  shall  be  included. 


 Section  6.  Disbursements. 
 All  checks  or  demands  for  money  and  notes  of  the  Corporation  shall  be  signed  by  such  officer  or  officers  or  such  other  person  or  persons  as  the  Board  may  from  time  to  time  designate. 


 INDEMNIFICATION 
 Section  1.  Power  to  Indemnify  in  Actions,  Suits  or  Proceedings  Other  Than  Those  by  or  in  the  Right  of  the  Corporation. 


 Subject  to  Section  3  of  this  Article  VIII,  the  Corporation  shall  indemnify  any  person  who  was  or  is  a  party  or  is  threatened  to  be  made  a  party  to  any  threatened,  pending  or  completed  action,  suit 
 or  proceeding,  whether  civil,  criminal,  administrative  or  investigative  (other  than  an  action  by  or  in  the  right  of  the  Corporation)  by  reason  of  the  fact  that  such  person  is  or  was  a  Director  or  officer  of  the 
 Corporation,  or  is  or  was  a  Director  or  officer  of  the  Corporation  serving  at  the  request  of  the  Corporation  as  a  director  or  officer,  employee  or  agent  of  another  corporation,  partnership,  joint  venture,  trust, 
 employee  benefit  plan  or  other  enterprise,  against  expenses  (including  attorneys  fees),  judgments,  fines  and  amounts  paid  in  settlement  actually  and  reasonably  incurred  by  such  person  in  connection  with  such 
 action,  suit  or  proceeding  if  such  person  acted  in  good  faith  and  in  a  manner  such  person  reasonably  believed  to  be  in  or  not  opposed  to  the  best  interests  of  the  Corporation,  and,  with  respect  to  any  criminal 
 action  or  proceeding,  had  no  reasonable  cause  to  believe  such  persons  conduct  was  unlawful.  The  termination  of  any  action,  suit  or  proceeding  by  judgment,  order,  settlement,  conviction,  or  upon  a  plea  of 
 nolo  contendere  or  its  equivalent,  shall  not,  of  itself,  create  a  presumption  that  the  person  did  not  act  in  good  faith  and  in  a  manner  which  such  person  reasonably  believed  to  be  in  or  not  opposed  to  the  best 
 interests  of  the  Corporation,  and,  with  respect  to  any  criminal  action  or  proceeding,  had  reasonable  cause  to  believe  that  such  persons  conduct  was  unlawful. 


 Section  2.  Power  to  Indemnify  in  Actions,  Suits  or  Proceedings  by  or  in  the  Right  of  the  Corporation. 
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 Subject  to  Section  3  of  this  Article  VIII,  the  Corporation  shall  indemnify  any  person  who  was  or  is  a  party  or  is  threatened  to  be  made  a  party  to  any  threatened,  pending  or  completed  action  or  suit 
 by  or  in  the  right  of  the  Corporation  to  procure  a  judgment  in  its  favor  by  reason  of  the  fact  that  such  person  is  or  was  a  Director  or  officer  of  the  Corporation,  or  is  or  was  a  Director  or  officer  of  the 
 Corporation  serving  at  the  request  of  the  Corporation  as  a  director,  officer,  employee  or  agent  of  another  corporation,  partnership,  joint  venture,  trust,  employee  benefit  plan  or  other  enterprise  against  expenses 
 (including  attorneys  fees)  actually  and  reasonably  incurred  by  such  person  in  connection  with  the  defense  or  settlement  of  such  action  or  suit  if  such  person  acted  in  good  faith  and  in  a  manner  such  person 
 reasonably  believed  to  be  in  or  not  opposed  to  the  best  interests  of  the  Corporation;  except  that  no  indemnification  shall  be  made  in  respect  of  any  claim,  issue  or  matter  as  to  which  such  person  shall  have 
 been  adjudged  to  be  liable  to  the  Corporation  unless  and  only  to  the  extent  that  the  Court  of  Chancery  or  the  court  in  which  such  action  or  suit  was  brought  shall  determine  upon  application  that,  despite  the 
 adjudication  of  liability  but  in  view  of  all  the  circumstances  of  the  case,  such  person  is  fairly  and  reasonably  entitled  to  indemnity  for  such  expenses  which  the  Court  of  Chancery  or  such  other  court  shall 
 deem  proper. 
 Section  3.  Authorization  of  Indemnification. 
 Any  indemnification  under  this  Article  VIII  (unless  ordered  by  a  court)  shall  be  made  by  the  Corporation  only  as  authorized  in  the  specific  case  upon  a  determination  that  indemnification  of  the 
 Director  or  officer  is  proper  in  the  circumstances  because  such  person  has  met  the  applicable  standard  of  conduct  set  forth  in  Sections  1  or  2  of  this  Article  VIII,  as  the  case  may  be.  Such  determination  shall  be 
 made,  with  respect  to  a  person  who  is  a  Director  or  officer  at  the  time  of  such  determination,  (i)  by  a  majority  vote  of  the  Directors  who  are  not  parties  to  such  action,  suit  or  proceeding,  even  though  less  than 
 a  quorum,  or  (ii)  by  a  committee  of  such  Directors  designated  by  a  majority  vote  of  such  Directors,  even  though  less  than  a  quorum,  or  (iii)  if  there  are  no  such  Directors,  or  if  such  Directors  so  direct,  by 
 independent  legal  counsel  in  a  written  opinion  or  (iv)  by  the  stockholders.  Such  determination  shall  be  made,  with  respect  to  former  Directors  and  officers,  by  any  person  or  persons  having  the  authority  to  act 
 on  the  matter  on  behalf  of  the  Corporation.  To  the  extent,  however,  that  a  present  or  former  Director  or  officer  of  the  Corporation  has  been  successful  on  the  merits  or  otherwise  in  defense  of  any  action,  suit  or 
 proceeding  described  above,  or  in  defense  of  any  claim,  issue  or  matter  therein,  such  person  shall  be  indemnified  against  expenses  (including  attorneys  fees)  actually  and  reasonably  incurred  by  such  person 
 in  connection  therewith,  without  the  necessity  of  authorization  in  the  specific  case. 
 Section  4.  Good  Faith  Defined. 
 For  purposes  of  any  determination  under  Section  3  of  this  Article  VIII,  a  person  shall  be  deemed  to  have  acted  in  good  faith  and  in  a  manner  such  person  reasonably  believed  to  be  in  or  not 
 opposed  to  the  best  interests  of  the  Corporation,  or,  with  respect  to  any  criminal  action  or  proceeding,  to  have  had  no  reasonable  cause  to  believe  such  persons  conduct  was  unlawful,  if  such  persons  action  is 
 based  on  the  records  or  books  of  account  of  the  Corporation  or  another  enterprise,  or  on  information  supplied  to  such  person  by  the  officers  of  the  Corporation  or  another  enterprise  in  the  course  of  their 
 duties,  or  on  the  advice  of  legal  counsel  for  the  Corporation  or  another  enterprise  or  on  information  or  records  given  or  reports  made  to  the  Corporation  or  another  enterprise  by  an  independent  certified  public 
 accountant  or  by  an  appraiser  or  other  expert  selected  with  reasonable  care  by  the  Corporation  or  another  enterprise.  The  term  another  enterprise  as  used  in  this  Section  4  shall  mean  any  other  corporation  or 
 any  partnership,  joint  venture,  trust,  employee  benefit  plan  or  other  enterprise  of  which  such  person  is  or  was  serving  at  the  request  of  the  Corporation  as  a  Director,  officer,  employee  or  agent.  The  provisions  of 
 this  Section  4  shall  not  be  deemed  to  be  exclusive  or  to  limit  in  any  way  the  circumstances  in  which  a 
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 person  may  be  deemed  to  have  met  the  applicable  standard  of  conduct  set  forth  in  Sections  1  or  2  of  this  Article  VIII,  as  the  case  may  be. 
 Section  5.  Indemnification  by  a  Court. 
 Notwithstanding  any  contrary  determination  in  the  specific  case  under  Section  3  of  this  Article  VIII,  and  notwithstanding  the  absence  of  any  determination  thereunder,  any  Director  or  officer 
 may  apply  to  the  Court  of  Chancery  in  the  State  of  Delaware  for  indemnification  to  the  extent  otherwise  permissible  under  Sections  1  and  2  of  this  Article  VIII.  The  basis  of  such  indemnification  by  a  court  shall 
 be  a  determination  by  such  court  that  indemnification  of  the  Director  or  officer  is  proper  in  the  circumstances  because  such  person  has  met  the  applicable  standards  of  conduct  set  forth  in  Section  1  or  2 
 of  this  Article  VIII,  as  the  case  may  be.  Neither  a  contrary  determination  in  the  specific  case  under  Section  3  of  this  Article  VIII  nor  the  absence  of  any  determination  thereunder  shall  be  a  defense  to  such 
 application  or  create  a  presumption  that  the  Director  or  officer  seeking  indemnification  has  not  met  any  applicable  standard  of  conduct.  Notice  of  any  application  for  indemnification  pursuant  to  this  Section  5 
 shall  be  given  to  the  Corporation  promptly  upon  the  filing  of  such  application.  If  successful,  in  whole  or  in  part,  the  Director  or  officer  seeking  indemnification  shall  also  be  entitled  to  be  paid  the  expense  of 
 prosecuting  such  application. 
 Section  6.  Expenses  Payable  in  Advance. 
 Expenses  incurred  by  a  Director  or  officer  in  defending  any  civil,  criminal,  administrative  or  investigative  action,  suit  or  proceeding  shall  be  paid  by  the  Corporation  in  advance  of  the  final 
 disposition  of  such  action,  suit  or  proceeding  upon  receipt  of  an  undertaking  by  or  on  behalf  of  such  Director  or  officer  to  repay  such  amount  if  it  shall  ultimately  be  determined  that  such  person  is  not 
 entitled  to  be  indemnified  by  the  Corporation  as  authorized  in  this  Article  VIII. 
 Section  7.  Nonexclusively  of  Indemnification  and  Advancement  of  Expenses. 
 The  indemnification  and  advancement  of  expenses  provided  by  or  granted  pursuant  to  this  Article  VIII  shall  not  be  deemed  exclusive  of  any  other  rights  to  which  those  seeking  indemnification 
 or  advancement  of  expenses  may  be  entitled  under  the  Certificate  of  Incorporation,  any  By-  Law,  agreement,  vote  of  stockholders  or  disinterested  Directors  or  otherwise,  both  as  to  action  in  such  persons 
 official  capacity  and  as  to  action  in  another  capacity  while  holding  such  office,  it  being  the  policy  of  the  Corporation  that  indemnification  of  the  persons  specified  in  Sections  1  and  2  of  this  Article  VIII  shall  be 
 made  to  the  fullest  extent  permitted  by  law.  The  provisions  of  this  Article  VIII  shall  not  be  deemed  to  preclude  the  indemnification  of  any  person  who  is  not  specified  in  Section  1  or  2  of  this  Article  VIII  but 
 whom  the  Corporation  has  the  power  to  or  obligation  to  indemnify  under  the  provisions  of  the  General  Corporation  Law  of  the  State  of  Delaware,  or  otherwise. 


 Section  8.  Insurance. 
 The  Corporation  may  purchase  and  maintain  insurance  on  behalf  of  any  person  who  is  or  was  a  Director  or  officer  of  the  Corporation,  or  is  or  was  a  Director  or  officer  of  the  Corporation  serving 
 at  the  request  of  the  Corporation  as  a  Director,  officer,  employee  or  agent  of  another  corporation,  partnership,  joint  venture,  trust,  employee  benefit  plan  or  other  enterprise  against  any  liability  asserted 
 against  such  person  and  incurred  by  such  person  in  any  such  capacity,  or  arising  out  of  such  persons  status  as  such,  whether  or  not  the  Corporation  would  have  the  power  or  the  obligation  to  indemnify  such 
 person  against  such  liability  under  the  provisions  of  this  Article  VIII. 
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 Section  9.  Certain  Definitions. 
 For  purposes  of  this  Article  VIII,  references  to  the  Corporation  shall  include,  in  addition  to  the  resulting  corporation,  any  constituent  corporation  (including  any  constituent  of  a 
 constituent)  absorbed  in  a  consolidation  or  merger  which,  if  its  separate  existence  had  continued,  would  have  had  power  and  authority  to  indemnify  its  Directors  or  officers,  so  that  any  person  who  is  or  was  a 
 Director  or  officer  of  such  constituent  corporation,  or  is  or  was  a  Director  or  officer  of  such  constituent  corporation  serving  at  the  request  of  such  constituent  corporation  as  a  Director,  officer,  employee  or  agent 
 of  another  corporation,  partnership,  joint  venture,  trust,  employee  benefit  plan  or  other  enterprise,  shall  stand  in  the  same  position  under  the  provisions  of  this  Article  VIII  with  respect  to  the  resulting  or 
 surviving  corporation  as  such  person  would  have  with  respect  to  such  constituent  corporation  if  its  separate  existence  had  continued.  For  purposes  of  this  Article  VIII,  references  to  fines  shall  include 
 any  excise  taxes  assessed  on  a  person  with  respect  to  an  employee  benefit  plan;  and  references  to  serving  at  the  request  of  the  Corporation  shall  include  any  service  as  a  Director,  officer,  employee  or  agent  of  the 
 Corporation  which  imposes  duties  on,  or  involves  services  by,  such  Director  or  officer  with  respect  to  an  employee  benefit  plan,  its  participants  or  beneficiaries;  and  a  person  who  acted  in  good  faith  and  in  a 
 manner  such  person  reasonably  believed  to  be  in  the  interest  of  the  participants  and  beneficiaries  of  an  employee  benefit  plan  shall  be  deemed  to  have  acted  in  a  manner  not  opposed  to  the  best  interests  of  the 
 Corporation  as  referred  to  in  this  Article  VIII. 
 Section  10.  Survival  of  Indemnification  and  Advancement  of  Expenses. 
 The  indemnification  and  advancement  of  expenses  provided  by,  or  granted  pursuant  to,  this  Article  VIII  shall,  unless  otherwise  provided  when  authorized  or  ratified,  continue  as  to  a  person  who 
 has  ceased  to  be  a  Director  or  officer  and  shall  inure  to  the  benefit  of  the  heirs,  executors  and  administrators  of  such  a  person. 


 Section  11.  Limitation  on  Indemnification. 
 Notwithstanding  anything  contained  in  this  Article  VIII  to  the  contrary,  except  for  proceedings  to  enforce  rights  to  indemnification  (which  shall  be  governed  by  Section  5  hereof),  the 
 Corporation  shall  not  be  obligated  to  indemnify  any  Director  or  officer  in  connection  with  a  proceeding  (or  part  thereof)  initiated  by  such  person  unless  such  proceeding  (or  part  thereof)  was  authorized  or 
 consented  to  by  the  Board  of  the  Corporation. 
 Section  12.  Indemnification  of  Employees  and  Agents. 
 The  Corporation  may,  to  the  extent  authorized  from  time  to  time  by  the  Board,  provide  rights  to  indemnification  and  to  the  advancement  of  expenses  to  employees  and  agents  of  the  Corporation 
 similar  to  those  conferred  in  this  Article  VIII  to  Directors  and  officers  of  the  Corporation. 


 AMENDMENTS 
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 (a)  Subject  to  paragraph  (b)  of  this  Article  IX  below,  and  in  furtherance  and  not  in  limitation  of  the  powers  conferred  by  law,  in  addition  to  any  affirmative  vote  of  the  holders  of  any 
 particular  class  or  series  of  the  capital  stock  of  the  Corporation  required  by  law,  the  Certificate  of  Incorporation  or  these  By-  Laws,  the  affirmative  vote  of  the  holders  of  at  least  a  majority  of  the  voting 
 power  of  all  of  the  then-  outstanding  shares  entitled  to  vote  generally  on  matters  requiring  approval  of  stockholders,  voting  together  as  a  single  class,  shall  be  authorized  to  adopt,  alter,  amend  or  repeal  any 
 provision  of  these  By-  Laws,  and,  subject  to  the  power  of  the  holders  of  capital  stock  of  the  Corporation  to  adopt,  alter,  amend  or  repeal  the  By-  Laws  under  the  DGCL,  the  Board  is  also  expressly  authorized  to 
 adopt,  alter,  amend  or  repeal  any  provision  of  these  By-  Laws. 
 (b)  Notwithstanding  any  of  the  foregoing,  (i)  Article  II,  Sections  1,  2,  3,  12,  13,  (ii)  Article  III,  Sections  1,  3,  4,  5,  (iii)  Article  IV,  and  (iv)  this  Article  IX  of  these  By-  Laws,  may  only 
 be  amended,  altered  or  repealed  (x)  by  the  affirmative  vote  of  at  least  a  majority  of  the  Directors,  including  at  least  a  majority  of  Independent  Directors  then  serving  on  the  Board,  or  (y)  by  the  affirmative 
 vote  of  the  holders  of  at  least  a  majority  of  the  voting  power  of  all  of  the  then-  outstanding  shares  entitled  to  vote  generally  on  matters  requiring  approval  of  stockholders,  voting  together  as  a  single  class,  but 
 excluding  such  shares  Beneficially  Owned  by  Purchaser,  or  (z)  in  the  event  any  person,  together  with  its  Affiliates,  shall  have  acquired  ownership  of  sixty-  five  percent  (65%)  or  more  of  the  Corporations  Voting 
 Securities  then  outstanding,  pursuant  to  paragraph  (a)  of  this  Article  IX  above. 
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 EXHIBIT  2  Proposed  Resolutions  of  the  Board  of  Directors  of 
 The  News  Corporation  Limited  (the  "Corporation") 


 WHEREAS,  the  Board  of  Directors  has  previously  approved  a  series  of  transactions  (the  "Transactions")  pursuant  to  which  the  Corporation's  subsidiary,  Fox  Entertainment  Group,  Inc.,  a 
 Delaware  corporation  ("  FEG")  will  acquire  34%  of  the  outstanding  common  stock  of  Hughes  Electronics  Corporation  ("  Hughes"); 


 WHEREAS,  the  United  States  Department  of  Justice,  United  States  Department  of  Homeland  Security  and  Federal  Bureau  of  Investigation  (together,  the  Executive  Agencies) 
 have  sought  assurances  that  the  Corporation,  as  a  non-  U.  S.  entity,  will  not  be  able  to  influence  Hughess  compliance  with  lawful  requests  relating  to  issues  of  U.  S.  national  security  and  law 
 enforcement;  and 
 WHEREAS,  in  response  to  the  Executive  Agencies  requests,  it  is  proposed  that  the  Corporation  and  Hughes  take  certain  necessary  actions  to  amend  the  By-  laws  that  will  be  in  effect 
 upon  consummation  of  the  Transactions  so  as  to  read  as  set  forth  in  the  form  of  amended  and  restated  by-  laws  of  Hughes  attached  hereto  as  Exhibit  A  (  the  "Hughes  By-  law  Amendment"), 
 which  amendment  provides,  among  other  things  and  subject  to  the  terms  thereof,  that  the  Hughes'  Audit  Committee  shall  be  comprised  exclusively  of  U.  S.  citizens  and  shall  have  exclusive 
 jurisdiction  over  the  establishment,  oversight  and  evolution  of  policies  related  to  U.  S.  national  security  and  law  enforcement  concerns; 


 IT  IS  THEREFORE  RESOLVED,  that  the  Board  of  Directors  recognizes,  understands  and  accepts  the  Hughes  By-  law  Amendment  and  hereby  determines  that  it  is  advisable,  desirable 
 and  in  the  best  interests  of  the  Corporation  and  its  stockholders  to,  in  order  to  implement  the  Hughes  By-  law  Amendment,  amend  (i)  the  Stock  Purchase  Agreement,  dated  as  of  April  9,  2003, 
 as  amended,  by  and  among  the  Corporation,  Hughes  and  General  Motors  Corporation  and  (ii)  the  Agreement  and  Plan  of  Merger,  dated  as  of  April  9,  2003,  as  amended,  by  and  among  the 
 Corporation,  Hughes  and  GMH  Merger  Sub,  Inc.,  in  each  case  in  the  manner  contemplated  by  the  form  of  letter  agreement  attached  hereto  as  Exhibit  B  (the  Letter  Agreement);  and  it  is  further 


 RESOLVED,  that  the  Board  of  Directors  accepts  and  acknowledges  that,  subject  to  the  terms  of  the  Hughes  By-  law  Amendment,  each  member  of  the  Hughes  Audit  Committee  shall  be 
 a  U.  S.  citizen;  and  it  is  further 
 RESOLVED,  that  the  Board  of  Directors  understands  the  national  security  and  law  enforcement  bases  of  the  Hughes  By-  law  Amendment  and  that  the  adoption  of  the  Hughes  By-law 
 Amendment  is  a  condition  of  the  Executive  Agencies  consent  to  the  U.  S.  Federal  Communications  Commissions  approval  of  the  transfer  of  certain  licenses  and  assets  associated 
 with  the  acquisition  of  Hughes  shares  by  FEG. 
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 EXHIBIT  3 
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 APPENDIX  G 
 LICENSES  AND  AUTHORIZATIONS  TO  BE  TRANSFERRED 
 File  No.  SAT-  T/  C-  20030502-  00083  is  the  Lead  File  number  for  the  space  station  series  of  applications.  The  complete  list  of  File  Numbers  follows: 


 Satellite  Space  Stations: 
 File  Number  Licensee/  Call  Signs 
 SAT-  T/  C-  20030502-  00083  DIRECTV  Enterprises,  LLC  Call  Sign(  s):  DBS8402;  S2369;  DBS8402;  DBS8402;  S2430;  S2417; 


 DBS8804 
 SAT-  T/  C-  20030505-  00084  Hughes  Network  Systems,  Inc.  Call  Sign(  s):  S2132;  S2133;  S2185;  S2187;  S2188;  S2190;  S2191 


 SAT-  T/  C-  20030502-  00085  PanAmSat  Licensee  Corporation  Call  Sign(  s):  S2368;  PAS-  2R;  PAS-  4;  CS91004;  PAS-  6;  PAS-  8;  S2359;  PAS-9; 
 S2229;  S2380;  S2382;  S2131;  S2128;  S2381;  S2377;  GAL  V;  GAL  VIII(  i);  S2146;  S2378;  S2253;  S2422;  SBS-  6;  KS39 


 SAT-  T/  C-  20030502-  00086  USSB  II,  Inc.  Call  Sign(  s):  DBS8107;  DBS8107 


 File  No.  SES-  T/  C-  20030502-  00582  is  the  Lead  File  number  for  the  earth  station  series  of  applications.  The  complete  list  of  File  Numbers  follows  (see  also  Public  Notice,  Report  No.  SES  00565,  December  31,  2003): 
 Satellite  Earth  Stations: 
 File  Number  Licensee/  Call  Signs 
 SES-  T/  C-  20030502-  00582  Hughes  Network  Systems,  Inc.  Call  Sign(  s):  E000166;  E030007;  E880787;  E880788;  E880789;  E881110; 


 E881111;  E881112;  E890426;  E890427;  E890428;  E890628;  E890629;  E890630;  E891001;  E891002;  E900192;  E900682;  E940455;  E940460; 
 E950471;  E950472;  E950473;  E970067;  E990170  (VSAT  Transmit/  Receive) 
 SES-  T/  C-  20030502-  00583  Hughes  Network  Systems  Limited  Call  Sign(  s):  E000362;  E010187;  E020195;  E020205;  E020206;  E020207; 


 E020208  (Transmit/  Receive) 
 SES-  T/  C-  20030502-  00584  Hughes  Network  Systems,  Inc.  Call  Sign(  s):  E020241;  E020242;  E030004;  E030005;  E030006;  E880970; 


 E881109;  E890627;  E900013;  E910612;  E940478;  SES-  STA-  20021101-  01942  (Transmit/  Receive) 


 SES-  T/  C-  20030502-  00585  USSB  II,  Inc.  Call  Sign(  s):  E930437  (Receive  Only) 
 SES-  T/  C-  20030502-  00586  USSB  II,  Inc.  Call  Sign(  s):  E930485  (Transmit  Only) 
 SES-  T/  C-  20030502-  00587  California  Broadcast  Center,  LLC  Call  Sign(  s):  E010237;  E020091  (Transmit/  Receive) 
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 SES-  T/  C-  20030502-  00588  PanAmSat  Licensee  Corporation  Call  Sign(  s):  E010334;  E970080  (Receive  Only) 
 SES-  T/  C-  20030502-  00589  PanAmSat  Licensee  Corporation  Call  Sign(  s):  E950067;  E970051  (Transmit  Only) 
 SES-  T/  C-  20030502-  00590  PanAmSat  Licensee  Corporation  Call  Sign(  s):  E000048;  E000049;  E000063;  E000274;  E000363;  E000364; 
 E000488;  E010019;  E010112;  E010113;  E010131;  E010133;  E020309;  E030012;  E4132;  E7465;  E881286;  E881304;  E890530;  E900089;  E920340; 
 E920377;  E930088;  E940333;  E940368;  E940532;  E950267;  E950307;  E950502;  E950508;  E970352;  E970391;  E970392;  E980460;  E980467; 
 E980501;  E980502;  E980503;  E990024;  E990091;  E990092;  E990093;  E990214;  E990223;  E990224;  E990323;  E990334;  E990363;  E990364; 
 E990365;  E990433;  KA244;  KA245;  KA391;  KA450;  KA71  (Transmit/  Receive) 


 SES-  T/  C-  20030502-  00591  PanAmSat  Licensee  Corporation  Call  Sign(  s):  E010118;  E010280;  E990055  (Temporary  Transmit/  Receive) 
 SES-  T/  C-  20030502-  00592  PanAmSat  Licensee  Corporation  Call  Sign(  s):  E2178;  E3943;  E860175;  E900621;  E900757;  KL92  (Common 
 Carrier  Transmit/  Receive) 
 SES-  T/  C-  20030505-  00601  DIRECTV  Enterprises,  LLC  Call  Sign(  s):  E950423;  E950424;  E980170;  E980341  (Receive 


 Only) 


 SES-  T/  C-  20030505-  00602  DIRECTV  Enterprises,  LLC  Call  Sign(  s):  E930229;  E930304  (Transmit  Only) 


 SES-  T/  C-  20030505-  00603  DIRECTV  Enterprises,  LLC  Call  Sign(  s):  E010129;  E010130;  E020172;  E930191;  E950349;  E980285; 
 E980338;  E980340;  E980473;  E990159  (Transmit/  Receive) 
 SES-  T/  C-  20030505-  00604  DIRECTV  Enterprises,  LLC  Call  Sign(  s):  E990545  (Temporary  Transmit/  Receive) 


 SES-  T/  C-  20030505-  00605  DIRECTV  Latin  America,  LLC  (D-  I-  P)  Call  Sign(  s):  E990232  (Transmit/  Receive) 
 SES-  T/  C-  20030505-  00606  Hughes  Communications  Satellite  Services,  Inc.  Call  Sign(  s):  E960001;  E970079;  E970094  (Receive  Only) 
 SES-  T/  C-  20030505-  00607  Hughes  Network  Systems,  Inc.  Call  Sign(  s):  E861092;  E873438  (Temporary  Transmit/  Receive) 


 File  No.  0001293908  is  the  Lead  File  number  for  the  wireless  radio  series  of  applications.  The  complete  list  of  File  Numbers  follows: 
 Wireless  Licenses: 
 File  Number  Licensee/  File  Nos. 
 0001293908  DIRECTV,  Inc.  Call  Sign(  s):  WPTZ691  (IG) 
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 0001293894  Hughes  Electronics  Corporation  Call  Sign(  s):  WNEU9099  (MG) 
 0001293921  Hughes  Network  Systems,  Inc.  Call  Sign(  s):  WPVW320  (IG) 
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 SEPARATE  STATEMENT  OF  CHAIRMAN  MICHAEL  K.  POWELL 
 Re:  General  Motors  Corporation  and  Hughes  Electronics  Corporation,  Transferors  and  The  News  Corporation  Limited,  Transferee,  for  Authority  to  Transfer  Control 


 The  Commission  has  now  completed  a  multi-  year  review,  involving  two  separate  transfer  applications,  to  transfer  control  of  Commission  licenses  involving  nationwide  DBS  provider  DirecTV. 
 Unlike  the  transfer  application  involving  Echostar  Communications  which  ultimately  became  the  first  major  transaction  blocked  by  this  Commission  in  decades  because  it  would  have  harmed  the  public 
 interest  by  combining  the  only  two  nationwide  DBS  providers  in  the  country  1  this  transaction,  as  conditioned,  involving  General  Motors,  Hughes  Electronics  Corporation  and  The  News  Corporation 
 (  News  Corp.)  will  bring  significant  benefits  to  the  American  public. 
 As  a  result  of  this  transaction,  DirecTV  will  be  a  stronger  competitor  in  the  pay-  television  space,  especially  against  market-  leading  cable  operators.  This  increased  competition  to  cable  will  spur  new 
 innovative  services  and  programming,  lower  prices  and  increased  service  quality  not  just  to  current  and  future  DirecTV  subscribers,  but  to  all  pay-  television  subscribers  as  cable  operators  throughout  the  country 
 will  be  forced  to  respond  to  this  new  nationwide  competitive  threat. 
 This  transaction,  as  proposed,  did  raise  concerns  about  use  and  abuse  of  market  power.  Our  strict  and  narrowly  tailored  conditions,  however,  will  prevent  the  realization  of  these  harms  to  the  public.  For 
 example,  we  were  concerned  that  the  merged  entity  would  discriminate  against  unaffiliated  programmers,  preventing  DirecTV  subscribers  from  accessing  compelling  programming  from  a  multiplicity  of  diverse 
 sources.  To  address  this  concern,  we  condition  this  transaction  to  ensure  that  unaffiliated  programmers  have  access  to  the  DirecTV  platform  on  nondiscriminatory  terms  and  conditions. 


 We  were  concerned  that  the  merged  entity  would  force  across-  the-  board  MVPD  price  increases  by  using  its  increased  incentive  and  ability  to  threaten  to  or  actually  withhold  highly  valued  programming 
 by  consumers  namely  local  broadcast  signals  and  regional  sports  networks  2  to  extract  excessive  rents  or  unfair  carriage  concessions  from  MVPDs  programming  costs  almost  certain  to  be  passed  on  to 
 subscribers.  We  addressed  this  concern  by  setting  up  a  commercial  arbitration  remedy  that  will  help  reign  in  excessive  programming  price  increases  and  ensure  that  the  public  will  not  lose  access  to  the  valued 


 1  See  Application  of  EchoStar  Communications  Corporation,  General  Motors  Corporation,  Hughes  Electronics 
 Corporation  (Transferors)  and  EchoStar  Communications  Corporation  (Transferees),  17  FCC  Rcd  20559  (2002). 
 2  One  should  not  view  our  conditions  regarding  retransmission  agreements  or  regional  sports  networks  as  anything 
 other  than  a  condition  to  mitigate  a  merger-  specific  harm  identified  in  the  record  of  this  proceeding.  It,  especially,  should  not  be  interpreted  as  an  industry-  wide  declaration  of  the  Commission  concerning  the  ongoing  commercial 


 disputes  between  MVPDs  and  broadcasters  or  regional  and  national  sports  programming  networks.  The  broadcast  industry  and  the  sports  programming  market  continue  to  evolve  on  all  fronts.  In  the  case  of  sports,  for  instance, 
 increased  channel  capacity  on  MVPD  systems  and  advances  in  broadband  Internet  access  are  providing  leagues,  teams,  MVPD  providers  and  sports  programming  networks  with  new  opportunities  for  sports  distribution.  In 
 addition,  there  are  signs  in  the  marketplace  to  suggest  that  the  extraordinary  increases  in  license  fees  paid  by  sports  networks  to  teams  over  the  past  year  which  then  get  passed  on  to  MVPDs,  then  on  to  consumers  is 
 stabilizing.  I  continue  to  believe  these  issues  are  best  resolved  in  the  marketplace. 
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 programming  during  negotiations  and  arbitration.  In  addition,  we  ensure  that  News  Corp.  s  other  affiliated  programming  will  be  offered  to  all  MVPDs  on  a  non-  discriminatory  basis. 
 Finally,  this  transaction  will  result  in  more  local  programming  being  carried  by  DirecTV  in  more  local  markets.  In  fact,  as  a  condition  of  this  license  transfer,  we  mandate  that  the  merged  entity  provide, 
 by  year  end  2004,  local  channel  service  in  an  additional  30  DMAs  beyond  what  had  been  previously  funded,  projected  or  planned  by  Hughes/  DirecTV.  As  DBS  providers  continue  to  carry  local 
 broadcasting  services  to  more  and  more  Americans  and  in  the  process  become  a  more  effective  competitor  against  cable,  both  of  our  collective  localism  and  competition  goals  are  enhanced.  I  share  the 
 desires  of  my  colleagues  to  see  more  DBS  providers  carry  local  broadcast  signals  and  local  programming  into  more  local  markets  especially  to  rural  America.  3 


 In  short,  facilities-  based  competition  among  satellite  and  cable  providers  has  led  to  more  innovation,  more  programming  and  more  subscribers.  As  a  result  of  this  transaction  those  trends,  along 
 with  competitive  prices  and  better  quality  of  service  will  continue  for  the  American  public.  I,  therefore,  approve  this  transaction,  as  conditioned,  as  I  believe  it  serves  the  public  interest. 


 3  With  regard  to  APTS/  PBSs  proposed  condition  to  restrict  DirecTV  from  segregating  local  broadcast  stations  to 
 wing  satellites,  I  do  not  believe  there  is  sufficient  record  evidence  to  suggest  that  there  was  a  merger-  specific  public  interest  harm  that  called  for  the  proposed  condition.  To  the  extent  APTS/  PBS  advocated  a  further 


 clarification  of  an  interpretation  of  the  nondiscriminatory  local  broadcast  carriage  provisions  of  SHVIA,  I  do  not  believe  this  question  is  best  resolved  in  this  license-  transfer  proceeding,  but  is  better  suited  for  a  separate 
 Commission  review.  As  noted  by  APTS/  PBS  in  their  comments  to  this  proceeding,  the  Commission  will  have  this  opportunity  in  considering  the  APTS/  PBS  Application  for  Review  (see  Application  for  Review  of  the  Association 
 of  Public  Television  Stations  and  the  Public  Broadcasting  Service,  CSR-  5865-  Z  (May  6,  2002))  of  a  previous  Media  Bureau  interpretation  of  SHVIA.  See  National  Association  of  Broadcasters  and  Association  of  Local 
 Television  Stations  Request  for  Modification  or  Clarification  of  Broadcast  Carriage  Rules  for  Satellite  Carriers,  Declaratory  Ruling  and  Order,  DA  02-  765  (Apr.  4,  2002).  Until  that  time,  DBS  providers  using  a  two-  dish 
 solution  must  do  so  consistent  with  Section  76.66  of  our  rules  and  Section  338(  d)  of  the  Communications  Act. 
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 SEPARATE  STATEMENT  OF  COMMISSIONER  KATHLEEN  Q.  ABERNATHY 
 General  Motors  Corporation  and  Hughes  Electronics  Corporation,  Transferors,  and  The  News  Corporation  Limited,  Transferee,  For  Authority  to  Transfer  Control,  MB  Docket  No.  03-  124 
 I  write  separately  to  clarify  my  rationale  for  not  supporting  the  imposition  of  a  proposed  condition  to  restrict  DirecTV  from  segregating  some,  but  not  all,  local  broadcast  stations  to  wing  satellites.  As  the 
 Order  specifically  states,  [  w]  ith  regard  to  APTS/  PBSs  proposed  condition  to  restrict  DirecTV  from  segregating  local  broadcast  stations  to  wing  satellites,  we  recognize  that  the  proposed  transaction  may 
 give  DirecTV  greater  incentive  to  favor  News  Corp.  s  Fox  broadcast  network  programming  and  therefore  to  move  other  broadcasters  onto  other  satellites.  There  is  not  a  majority  to  decide  whether  this  increased 
 incentive  results  in  a  merger  specific  harm. 
 I  do  not  believe  the  issue  is  merger  specific  because  any  incentive  to  use  wing  satellites  for  some,  but  not  all,  broadcast  stations  is  applicable  to  all  DBS  providers,  not  just  News  Corp.  In  fact,  the  National 
 Association  of  Broadcasters  and  the  Association  of  Local  Television  Stations  filed  a  petition  asking  for  modification  or  clarification  of  the  Commissions  rules  regarding  carriage  of  television  broadcast  stations 
 by  DBS  providers  in  a  manner  that  requires  subscribers  to  obtain  a  second  satellite  dish  antenna.  1  Since  the  Bureaus  decision  in  that  matter  is  subject  to  an  application  for  review  by  the  full  Commission,  I 
 believe  that  this  issue  is  best  addressed  in  the  context  of  that  proceeding.  In  the  interim,  the  Bureaus  decision  provides  that  if  any  DBS  provider  chooses  to  carry  local  stations  using  a  second  dish  to  receive 
 some  those  stations,  it  must  do  so  in  a  manner  that  does  not  violate  Section  76.66  of  our  rules  and  Section  338(  d)  of  the  Communications  Act.  2 


 1  See  National  Association  of  Broadcasters  and  Association  of  Local  Television  Stations,  Request  for  Modification 
 or  Clarification  of  Broadcast  Carriage  Rules  for  Satellite  Carriers,  17  FCC  Rcd  6065  (MD,  2002). 
 2  [  T]  he  satellite  carrier  shall  retransmit  the  signal  of  the  local  television  broadcast  stations  to  subscribers  in  the 
 stations  local  market  on  contiguous  channels  and  provide  access  to  such  stations  signals  at  a  nondiscriminatory  price  and  in  a  nondiscriminatory  manner  on  any  navigational  device,  on-  screen  program  guide  or  menu.  47 


 U.  S.  C.  Section  338(  d). 
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 to  assume  that  we  are  setting  the  stage  for  upward  pressure  on  consumer  rates.  An  entirely  plausible  outcome  of  this  decision  is  escalating  rates  for  multi-  channel  services  from  both 
 cable  systems  and  DirecTV.  When  faced  with  a  similar  scenario,  the  Federal  Trade  Commission  in  the  Time  Warner/  Turner  merger  adopted  a  benchmark  price  index 
 mechanism.  Here,  the  majority  dismisses  such  an  approach,  adopting  instead  so-  called  baseball  arbitration.  I  am  not  convinced  that  arbitration  has  succeeded  in  bringing  down 
 costs  in  baseball.  More  to  the  point,  this  is  not  baseball  and  it  is  surely  not  a  game.  Although  the  majority  allows  the  Commission  to  review  the  arbitration  decisions,  it  then  ties  the 
 Commissions  hands  by  requiring  us  to  choose  between  each  partys  final  offer.  This  reduces  the  Commissions  obligation  to  protect  the  public  interest  to  a  multiple  choice  test.  Lets  be 
 clear  here:  what  the  arbitrators  will  most  often  be  arbitrating  are  two  companies  proposals  about  how  much  more  programming  is  going  to  cost.  The  only  question  to  be  decided  is: 
 how  much  more.  Payment  for  higher  programming  license  fees  will  be  borne,  of  course,  by  consumers. 


 Moreover,  although  the  majority  seems  to  recognize  the  possibility  of  increased  consumer  rates  from  this  level  of  consolidation,  it  inexplicably  provides  a  sunset  for  these  conditions  of 
 six  years.  This  sunset  is  adopted  without  any  explanation  of  why  the  majority  expects  these  harms  to  be  resolved  within  that  timeframe. 


 I  am  troubled  by  other  aspects  of  this  decision. 
 I  am  troubled  by  the  lack  of  analysis  on  the  foreign  ownership  implications  of  the  transaction.  In  section  310(  b)  of  the  Act,  Congress  adopted  a  broad  provision  that  limits  the  ability  of  foreign  entities  to 
 own  or  operate  parts  of  our  communications  system.  This  foreign  ownership  restriction  applies  across  a  broad  range  of  communications  services.  For  decades,  the  Commission  applied  these  restrictions  to  DBS. 
 Last  year,  with  inadequate  justification,  the  Commission  determined  that  the  foreign  ownership  restrictions  in  310(  b)  should  not  apply  to  DBS.  As  a  result,  the  majority,  in  approving  this  deal  under 
 which  News  Corp.,  an  Australian  company,  purchases  control  of  a  U.  S.  DBS  licensee,  concludes  that  it  need  not  consider  the  foreign  ownership  implications. 


 I  am  troubled  by  the  majoritys  failure  to  consider  the  impact  of  this  merger  on  minority  communities.  The  Congressional  Hispanic  Caucus  in  a  recent  letter  raised  numerous  serious  issues 
 related  to  the  negative  impact  of  this  merger  on  the  Latino  community,  on  minority-  owned  independent  programmers  and  on  local  and  Latino-  focused  programming.  The  majority  fails  to  do  justice  to  these 
 concerns. 
 I  am  troubled  that  the  Commission  is  approving  this  merger  without  resolving  issues  specific  to  the  Applicants  that  have  been  raised  regarding  service  in  Alaska  and  Hawaii.  Parties  have  filed 
 complaints  that  DirecTV  fails  to  provide  reasonably  comparable  packages  of  services  to  Alaska  and  Hawaii,  as  required  by  our  rules.  If  these  companies  are  violating  Commission  rules,  we  should  address 
 these  issues  as  part  of  our  public  interest  analysis. 
 Finally,  I  am  troubled  by  the  failure  to  clarify  that  DirecTV,  or  any  other  DBS  provider,  may  not  discriminate  against  some  local  broadcasters  by  requiring  consumers  to  obtain  a  second  dish  to  receive 
 those  broadcasters.  In  1999,  Congress  passed  the  Satellite  Home  Viewer  Improvement  Act  (SHVIA).  That  Act  required  that,  if  a  provider  carries  any  local  broadcast  signals,  it  must  carry  all  local  broadcast 
 signals,  and  must  do  so  at  a  nondiscriminatory  price  and  in  a  nondiscriminatory  manner.  In  2002,  Commissioner  Martin  and  I  issued  a  joint  statement  making  clear  our  view  that  a  plan  to  require 
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 consumers  to  obtain  a  second  dish  to  receive  only  some  of  the  local  broadcast  stations  in  a  market  did  not  comply  with  the  statute  or  Commission  rules. 
 In  sum,  I  simply  cannot  support  the  level  of  concentration  by  a  single  owner  that  will  result  from  this  merger  absent  compelling  public  interest  circumstances.  Unfortunately,  I  do  not  find  that  the 
 potential  public  interest  benefits  of  this  transaction  outweigh  the  real  and  potential  harms.  This  decision  is  the  wrong  decision    wrong  for  the  media  industry,  wrong  for  consumers,  wrong  for  democracy  in 
 America. 
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 SEPARATE  STATEMENT  OF  COMMISSIONER  KEVIN  J.  MARTIN 
 Re:  General  Motors  Corporation  and  Hughes  Electronics  Corporation  (Transferors)  and  News  Corporation  Limited  (Transferee)  for  Authority  to  Transfer  Control,  Order,  MB  Docket  No. 
 03-  124) 
 I  support  the  Commissions  decision  to  approve  this  transaction.  While  the  merger  of  News  Corp.  and  DirecTV  presents  potential  harms  and  benefits,  I  believe  that,  on  balance,  the 
 merger  as  conditioned  will  benefit  consumers,  competition,  and  the  public  interest. 
 I  write  separately  to  express  my  disappointment  that  a  majority  of  my  colleagues  is  unwilling  to  grant  the  public  television  communitys  request  to  clarify  the  requirements  under  the 
 Satellite  Home  Viewer  Improvement  Act  (  SHVIA)  and  specifically  require  that,  in  providing  local-into-  local  service  pursuant  to  SHVIA,  DirecTV  could  not  place  certain  local  broadcast  stations  on 
 wing  satellites.  1 
 As  I  have  stated  before,  I  believe  Congress  provided  that  DBS  operators  would  have  the  opportunity  to  carry  local  broadcast  stations,  but  if  they  choose  to  do  so,  they  would  have  to  provide 
 consumers  with  all  the  local  broadcast  stations.  2  These  carry  one,  carry  all  provisions  of  SHVIA  include  a  prohibition  against  discriminatory  treatment  of  the  broadcast  signals.  3  As  I  have  explained 
 in  detail  previously,  I  believe  Congresss  non-  discrimination  provision  prevents  DBS  providers  from  placing  preferred  broadcasters  on  a  main  satellite  and  relegating  certain  disfavored  broadcasters 
 to  a  second  satellite.  4  Non-  discrimination  requires  that  all  broadcast  stations  be  placed  on  the  same  dish.  The  Association  of  Public  Television  Stations  and  the  Public  Broadcasting  Service,  therefore, 
 are  asking  no  more  than  to  require  the  merged  entity  to  comply  with  the  governing  statute  and  our  rules  when  rolling  out  local-  into-  local  service  to  consumers  across  America.  Licensees  must 
 always  comply  with  the  statute  and  our  rules,  and  I  am  disappointed  that  only  one  of  my  colleagues  was  willing  to  make  this  clear. 


 This  is  an  unfortunate  day  for  public  television  stations,  religious  broadcasters  and  Spanish  language  broadcasters  the  stations  most  often  relegated  to  the  second  dish.  Indeed,  over  31 
 public  broadcast  stations  in  20  markets  have  been  denied  carriage  on  the  same  dish  as  other  broadcasters.  Local  religious  broadcast  stations  are  almost  uniformly  placed  on  the  second  dish,  if 
 they  are  carried  at  all.  Similarly,  numerous  Spanish  language  station  owners  have  all  documented  to  the  Commission  the  discriminatory  treatment  that  their  stations  receive;  most  are  carried  on  the 


 1  See  Comments  of  the  Association  of  Public  Television  Stations  and  the  Public  Broadcasting  Service  at  1  (June 
 16,  2003). 
 2  See,  e.  g.,  Statement  of  Commissioner  Kevin  J.  Martin  and  Commissioner  Michael  J.  Copps  Re:  National 
 Association  of  Broadcasters  and  Association  of  Local  Television  Stations  Request  for  Modification  or  Clarification  of  Broadcast  Carriage  Rules  for  Satellite  Carriers,  Declaratory  Ruling  and  Order,  April  10,  2002 


 (  Two-  Dish  Statement).  See  also  47  U.  S.  C.    338(  a)(  1). 
 3  See  47  U.  S.  C.    338(  d). 


 4  See  Two-  Dish  Statement.  To  the  extent  any  Media  Bureau  decisions  have  been  inconsistent  with  this 
 interpretation  of  the  statute,  they  have  not  been  affirmed  by  the  Commission  and  I  believe  they  are  in  error. 
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 second  dish,  unless  they  are  willing  to  pay  for  placement  on  the  main  satellite.  Recent  reports  have  shown  that  very  few  consumers  bother  to  acquire  the  second  dish,  which  has  meant  that  very  few 
 consumers  can  access  these  stations.  Consumers  and  broadcasters  deserve  better,  and  the  statute  requires  it. 


 It  is  important  to  emphasize  that  a  DBS  operators  roll-  out  of  local-  into-  local  stations  need  not  be  at  the  expense  of  public  television,  religious  and  Spanish  language  broadcasters.  SHVIA 
 does  not  hinder  a  DBS  provider  from  expanding  the  markets    including  rural  markets    in  which  it  carries  local  broadcast  signals.  The  use  of  a  second  dish  is  a  spectrum  allocation  issue.  If  DBS 
 providers  choose  to  use  a  two-  dish  solution  to  provide  local  broadcast  service  to  more  communities,  compliance  with  the  non-  discrimination  provision  simply  requires  that  all  the  local  stations  be  treated 
 similarly,  whether  they  are  placed  on  the  main  or  wing  satellite. 
 I,  along  with  my  colleague  Commissioner  Copps,  continue  to  believe  that  this  is  a  vital  issue  to  all  public,  religious  and  Spanish-  language  broadcasters.  I  am  disappointed  that  we  were  the 
 only  Commissioners  willing  to  vote  to  clarify  that  DBS  operators  must  place  all  broadcasters    or  at  least  all  public  broadcasters    on  the  same  dish.  I  also  am  disappointed  that  not  one  other 
 Commissioner  was  even  willing  to  address  this  fundamentally  unfair  policy  and  to  clarify  that  these  broadcasters  are  entitled  to  equal  treatment  under  the  law. 


 As  my  colleagues  in  the  majority  point  out,  this  issue  is  the  subject  of  an  Application  for  Review  that  has  been  pending  for  over  a  year  and  a  half,  in  which  the  Association  of  Public 
 Television  Stations  challenges  a  Bureau  decision  that  allows  a  DBS  provider  to  place  certain  broadcasters  on  a  second  dish.  5  Given  the  current  legal  status  and  the  continued,  prolonged  absence 
 of  Commission  action  in  that  docket,  and  in  the  face  of  a  direct  request  from  the  public  broadcast  community  in  this  proceeding,  I  am  uncomfortable  avoiding  this  issue  any  longer.  Moreover,  the 
 Order  recognizes  that  this  is  a  merger-  specific  issue:  We  recognize  that  the  proposed  transaction  may  give  DirecTV  greater  incentive  to  favor  News  Corp.  s  Fox  broadcast  network  programming  and 
 therefore  to  move  other  broadcasters  onto  other  satellites.  6  I  agree  that  this  issue  does  raise  merger-specific  concerns. 


 Finally,  I  note  that  a  clarification  of  the  legal  requirements  of  SHVIAs  non-discrimination  provision  here  would  be  the  industry-  wide  solution  that  some  have  called  for.  I  fail  to 
 see  why  any  Commissioner  supportive  of  such  a  solution  would  not  vote  for  that  resolution  when  presented  with  that  opportunity  here. 


 5  See  Association  of  Public  Television  Stations  and  the  Public  Broadcasting  Service,  Application  for  Review,  CSR 
 5865-  Z  (May  2002);  National  Association  of  Broadcasters  and  Association  of  Local  Television  Stations  Request  for  Modification  or  Clarification  of  Broadcast  Carriage  Rules  for  Satellite  Carriers,  Declaratory  Ruling  and 


 Order,  17  FCC  Rcd  6065  (MB  2002). 
 6  Order  at  para.  273. 
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 DISSENTING  STATEMENT  OF  COMMISSIONER  JONATHAN  S.  ADELSTEIN 
 Re:  General  Motors  Corporation  and  Hughes  Electronics  Corporation,  Transferors,  and  The  News  Corporation  Limited,  Transferee,  MB  Docket  No.  03-  124 
 Deciding  whether  a  fox  should  guard  a  hen  house  is  a  far  more  serious  exercise  than  this  Order  reflects.  Granted,  the  birds  in  this  case  are  not  hens  but  valuable  satellites  with  a  national  footprint  from 
 which  nearly  12  million  people  receive  video  programming  through  DirecTV.  And  the  Fox  in  this  case  is  already  one  of  the  worlds  largest  media  conglomerates,  with  a  vast  array  of  global  content  and 
 distribution  assets.  The  acquisition  of  Hughes  Electronics  Corporation  by  News  Corporation  (News  Corp.)  will  result  in  unprecedented  control  over  local  and  national  media  properties  in  one  global  media 
 empire.  Its  shockwaves  will  undoubtedly  recast  our  entire  media  landscape. 
 Never  before  has  a  single  corporation  been  armed  with  a  national  video  distribution  platform;  a  major  broadcast  network;  television  stations  in  nearly  every  major  media  market    reaching  more  than  44 
 percent  of  the  country    with  guaranteed  carriage  rights  on  other  distribution  platforms;  multiple  cable  networks  (11  national  and  22  regional,  including  sports  networks  with  exclusive  rights);  a  major  film  and 
 television  studio;  newspaper,  magazine  and  book  publishing  operations;  significant  video  programming  and  broadcasting  satellite  backhaul  capacity;  and  the  leading  program  guide  and  programming-  related 
 technologies  to  facilitate  a  consumers  viewing  experience.  With  this  unprecedented  combination,  News  Corp.  could  be  in  a  position  to  raise  programming  prices  for  consumers,  harm  competition  in  video 
 programming  and  distribution  markets  nationwide,  and  decrease  the  diversity  of  media  voices.  I  wish  the  full  dangers  of  this  combination  would  have  been  more  thoroughly  examined  and  confronted. 


 This  Order  makes  a  mockery  of  the  Commissions  public  interest  test.  Consumers  have  absolutely  no  assurance  of  benefiting  in  any  way  from  the  mergers  claimed  synergies,  yet  they 
 potentially  suffer  great  harm.  From  the  onset,  I  have  had  grave  concerns  about  this  transaction,  yet  I  have  sought  to  impose  meaningful  conditions  to  make  the  Order  better  than  it  otherwise  would  have  been. 
 Unfortunately,  not  all  of  those  conditions  were  imposed,  and  I  do  not  believe  that  any  supposed  public  interest  benefits  of  this  transaction  outweigh  its  very  real  harms. 


 It  has  long  been  a  goal  of  mine,  and  many  other  policymakers,  to  ensure  that  every  community  in  America  can  get  all  of  their  local  televisions  signals  directly  from  their  satellite  provider.  That  is  why  I 
 am  so  disappointed  that  this  Order  does  nothing  to  even  hold  News  Corp.  to  the  shallow  promises  they  made  to  the  Commission  to  provide  local  channels  to  consumers  in  all  210  television  markets  across  the 
 country.  Instead,  it  limply  adopts  the  requirement  that  DirecTV  provide  service  to  the  top  130  markets  by  the  end  of  2004,  leaving  the  smaller  markets  in  Rural  America  high  and  dry. 


 I  felt  strongly  that  the  Commission  should  require  DirecTV  to  provide  real  local-  into-  local  service,  meaning  every  local  broadcast  television  signal,  over  satellite  to  all  210  television  markets  across 
 the  country  by  2006.  It  is  especially  critical  to  have  required  a  firm  date  by  which  DirecTV  must  uplink  and  offer  local  broadcast  signals  for  every  television  market  in  America,  from  the  largest  to  the  smallest. 
 Consumers  living  in  rural  areas  deserve  the  same  benefits  as  their  more  urban  counterparts. 
 Instead,  I  learned  in  the  process  of  reviewing  this  matter  that  News  Corp.  has  no  intention  of  ever  providing  real  local-  into-  local  satellite  service  to  every  market  in  the  country.  A  close  examination  of 
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 their  commitments  revealed  them  to  mean  that  they  consider  it  enough  to  offer  some  reasonably  close  local  station  as  part  of  an  undefined  local  channel  package,  or  simply  add  a  digital  tuner  in  the  box  in 
 smaller  markets  and  hope  the  customer  can  receive  a  signal.  For  those  who  live  in  outlying  rural  areas,  tough  luck.  What  could  have  been  the  most  important  public  interest  benefit  of  this  merger  turns  out  to 
 be  nothing  more  than  a  sham,  and  the  Commission  is  going  along  with  it,  no  questions  asked. 
 It  is  especially  demoralizing  to  know  that  my  home  town  of  Rapid  City,  South  Dakota,  television  market  #175,  may  never  get  its  own  local  broadcasters  beamed  down  from  space.  The  loss  to  the  citizens 
 of  Rapid  City  is  emblematic  of  the  problems  so  many  communities  will  face  for  the  foreseeable  future.  They  may  never  receive  high-  quality  satellite  signals  of  their  local  news,  weather,  sports  and  other 
 locally-  based  programming.  Most  importantly,  people  living  in  outlying  areas  like  Kadoka,  South  Dakota,  who  cannot  otherwise  receive  Rapid  City  broadcasts,  will  never  receive  them  by  satellite,  and 
 slapping  an  antenna  on  their  dishes  will  offer  them  nothing. 
 We  hear  a  lot  of  talk  about  localism.  Here,  we  had  the  opportunity  to  do  something  about  it.  Instead,  we  let  News  Corp.  gain  all  the  benefits  of  this  merger  while  asking  them  to  do  nothing  in  return 
 for  Rural  America,  or  anyone  else,  for  that  matter.  We  abandoned  Rural  Americans  to  the  fickle  exigencies  of  the  marketplace,  with  every  assurance  that  it  will  fail  to  provide  them  the  same  quality  of 
 service  enjoyed  by  their  more  urban  counterparts. 
 By  todays  action,  the  FCC  allows  the  ever-  expanding  tide  of  vertical  and  horizontal  media  concentration  to  intensify.  It  signals,  yet  again,  the  FCCs  unwillingness  to  take  a  hard  look  at  media 
 consolidation.  It  vests  more  control  of  our  nations  media  in  the  hands  of  an  already  powerful  media  conglomerate.  And  it  raises  the  compulsion  for  other  companies  to  follow  suit,  to,  so-  to-  speak,  keep  up 
 with  the  Murdochs. 
 This  unprecedented  combination  could  dramatically  impact  News  Corp.  s  programming  and  distribution  rivals.  It  fundamentally  alters  the  relationship  of  News  Corp.  to  its  rivals,  as  it  now  becomes 
 a  vertically  integrated  competitor  to  all  other  MVPDs  in  every  single  MVPD  market,  and  the  first  of  only  two  nationwide  programming  platforms  to  have  its  own  programming.  It  increases  the  incentive  and 
 ability  to  act  anticompetitively  with  respect  to  all  rivals. 
 News  Corp.  is  now  in  a  position  to  distribute  programs  or  sporting  events  either  on  its  broadcast  network,  cable  networks,  regional  networks,  television  stations,  or  even  over  pay-  per-  view.  Imagine  the 
 increased  bargaining  power  of  News  Corp.  as  it  sits  at  various  negotiating  tables  in  these  interconnected  industries,  finding  itself  on  all  sides  at  once,  and  with  an  increased  arsenal  of  weapons  against  rival 
 programmers  or  distributors.  News  Corp.  will  be  in  a  position  to  demand  higher  programming  fees  or  demand  concessions  without  fear  of  losing  distribution. 


 The  Order  does  contain  some  useful  protections.  When  a  nationwide  distributor  merges  with  such  a  large  programmer,  there  rightly  should  be  consumer  protections  to  prevent  the  vertically  integrated 
 company  from  withholding  programming  from  rivals  or  offering  it  on  discriminatory  prices,  terms  or  conditions.  The  parties  commitments,  including  abiding  by  our  program  access  rules  and  other 
 nondiscrimination  safeguards,  are  positive  steps  which  I  am  pleased  are  included  as  express  conditions  of  approval. 


 The  Order  properly  finds  public  interest  harm  involving  even  temporary  foreclosure  of  retransmission  consent  of  News  Corp.  s  broadcast  television  properties  or  contractual  rights  to  carry  Fox-controlled 
 regional  sports  networks.  The  addition  of  DirecTVs  nationwide  platform  increases  the 
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 likelihood  that  News  Corp.  can  capitalize  on  a  strategy  of  withholding  consent  to  carry  these  programs,  even  temporarily.  Small  and  medium  sized  cable  operators  and  other  distributors  are  particularly 
 vulnerable  to  News  Corp.  s  enhanced  bargaining  power. 
 News  Corp.  s  bargaining  clout  is  even  more  heightened  for  its  regional  sports  networks,  for  which  few,  if  any,  competitive  alternatives  exist.  In  both  the  U.  K.  and  Australia,  News  Corp.  employs  a 
 strategy  of  seizing  key  sporting  rights  and  using  them  to  secure  favorable  carriage  terms.  Indeed,  as  early  as  1996,  Rupert  Murdoch  made  clear  his  intention  to  use  his  companys  formidable  sports  programming 
 assets  as  a  battering  ram  to  squeeze  out  concessions  from  his  rivals. 
 For  this  reason,  the  Order  appropriately  adopts  a  fair  and  neutral  mechanism  to  resolve  disputes,  requiring  News  Corp.  to  agree  to  undertake  binding  arbitration  with  its  distribution  rivals.  Any  mitigation 
 of  harm  that  this  arbitration  condition  brings,  however,  would  be  thwarted  if  News  Corp.  has  the  ability  during  the  pendency  of  the  arbitration  to  deny  its  rival  the  right  to  carry  the  disputed  programming.  So  it 
 is  absolutely  critical  that  the  Order  prevents  News  Corp.  from  yanking  sports  programming  during  the  arbitration  process.  This  may  save  consumers  not  only  their  viewing  of  popular  programming,  but  the 
 cost  and  other  savings  from  what  News  Corp.  could  have  otherwise  battered  out  of  its  rivals  and  their  customers.  Empirical  evidence  in  the  record  shows  that  dropping  such  programming  harms  viewers, 
 leads  to  higher  prices  and  results  in  significant  losses  to  the  competing  multichannel  video  programming  distributor. 


 Yet,  the  benefits  of  these  conditions  disappear  without  a  trace  after  six  years.  I  would  have  explicitly  left  room  to  extend  these  protections  for  up  to  six  additional  years,  for  a  total  of  twelve  years, 
 and  required  the  Commission  to  undertake  a  full  review  of  the  continued  need  for  these  conditions  through  a  notice  and  comment  proceeding.  Given  the  duration  of  some  of  todays  contracts,  and  the 
 possibility  that  the  identified  harms  of  capitalizing  on  DirecTVs  status  persist,  a  mere  six-  year  term  does  not  suffice.  The  requirement  for  the  Commission  to  undertake  a  full  notice  and  comment  proceeding 
 would  have  provided  the  Commission  valuable  information  to  assess  any  harms  of  this  merger,  and  would  have  kept  a  check  on  News  Corp.  s  incentive  to  use  its  new  leverage  to  harm  consumers. 


 In  addition,  to  account  for  possible  overall  rate  increases,  I  would  have  established  a  benchmarking  process  or  pricing  index  mechanism  to  evaluate  whether  the  merging  parties  are  raising 
 prices  at  a  more  accelerated  pace  than  their  historic  pattern.  Such  a  mechanism  has  been  implemented  in  the  past  for  vertical  relationships  between  programmers  and  distributors.  This  benchmarking  process 
 would  have  ensured  that  rates  not  rise  too  quickly  for  all  distributors,  and  would  have  been  a  better  way  to  address  the  merger-  specific  harms  identified  in  the  Order. 


 I  am  deeply  worried  that  with  this  extraordinary  combination,  News  Corp.  will  be  in  a  position  to  raise  rates  for  all  of  its  programming,  thus  driving  up  MVPD  prices  around  the  country  and  harming 
 consumers.  At  the  same  time  that  it  is  competing  with  cable  and  other  distributors  for  subscribers,  it  could  raise  the  costs  to  those  distributors  for  the  underlying  programming,  or  could  pressure  the 
 companies  for  other  benefits  such  as  favorable  channel  placement.  None  of  the  mergers  protections  addresses  the  likelihood  that  News  Corp.  engages  in  profit  maximizing  behavior  and  raises  programming 
 prices  for  all  distributors.  In  fact,  in  some  ways,  the  merger  conditions  could  be  used  to  send  valuable  signals  to  other  MVPDs  about  the  prices,  terms  and  conditions  of  programming  carriage  or  the 
 consequences  of  resisting  News  Corp.  s  demands.  Without  quantifiable  benchmarks  or  pricing  standards,  there  is  insufficient  assurance  to  the  public  that  this  transaction  will  not  result  in  increased  prices  for  all. 
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 I  have  many  other  concerns  with  this  transaction.  The  merger  furthers  concentration  in  local  media  markets  by  consolidating  ownership  over  local  media  outlets  under  one  global  media 
 conglomerate.  In  major  media  markets  across  the  country,  it  combines  one,  sometimes  two,  local  television  stations,  with  one  of  typically  three  major  multichannel  video  programming  distributors.  In 
 New  York,  for  example,  it  combines  a  television  duopoly,  a  newspaper,  and  a  DBS  operator.  In  Puerto  Rico,  some  cable  subscribers  are  served  by  a  system  owned  by  Liberty  Media,  a  significant  investor  in 
 News  Corp.  who  stands  to  benefit  from  DirecTVs  gains.  The  Commission  should  have  conducted  a  specific  market-  by-  market  review  of  the  effects  of  consolidation  on  competition,  localism  and  diversity  in 
 particular  local  media  markets.  Moreover,  under  the  Commissions  relaxed  media  ownership  rules,  News  Corp.  would  be  free  to  acquire  additional  duopolies,  radio  stations  and  newspapers  in  those  same  local 
 media  markets,  furthering  their  control  over  what  local  viewers  see,  hear  and  read. 
 This  merger  also  threatens  disruptive  effects  for  competing  programmers,  particularly  independent  programmers  and  producers.  Even  without  the  merger,  through  the  use  of  retransmission 
 consent,  News  Corp.  has  been  able  to  expand  its  cable  networks  faster  than  any  other  cable  programmer.  I  will  continue  to  monitor  closely  whether  News  Corp.  provides  opportunities  for  both  established  and 
 new  networks,  particularly  new  entrants,  to  negotiate  carriage  on  fair  and  reasonable  terms  on  DirecTV.  New  Spanish-  language  networks,  for  example,  have  reached  agreement  with  cable  providers  and  are 
 attempting  to  negotiate  carriage  on  DirecTV.  Given  DirecTVs  history  of  promoting  a  diversity  of  programming,  I  would  be  concerned  if  its  acquisition  by  News  Corp.  resulted  in  a  loss  of  diverse, 
 independent  or  minority-  owned  programming  to  an  eager  public  in  order  to  favor  networks  it  owns. 
 I  am  also  concerned  with  News  Corp.  s  ability  to  leverage  its  program  guide  and  interactive  holdings.  Gemstar-  TV  Guide,  with  a  leading  position  in  electronic  and  interactive  program  guides, 
 recently  gave  DirecTV  use  of  its  intellectual  property,  technology  and  brand.  I  expect  this  same  flexible  licensing  approach  to  continue  to  be  made  available  to  others  on  a  timely  and  fair  basis. 


 News  Corp.  has  a  history  of  taking  risks,  and  the  Applicants  have  committed  to  launching  several  new  interactive  services  on  the  DirecTV  platform  in  2004,  using  a  new  DirecTV  user  interface  and 
 middleware  licensed  or  provided  by  News  Corp.  subsidiaries.  Provided  this  enhanced  viewing  experience  moves  beyond  the  more  rudimentary  interactive  gaming  services  offered  today,  this  promises 
 to  benefit  consumers  in  significant  ways.  With  the  prospect  of  interactive  services  more  imminent,  the  Commission  must  be  cognizant  of  the  ways  in  which  a  distributor  or  particular  middleware  or  program 
 guide  vendor  could  favor  affiliated  programming  to  the  detriment  of  non-  affiliated  programmers.  I  would  be  concerned  if  News  Corp.  stood  as  a  gatekeeper  to  interactive  services  and  features  or  demanded  from 
 rival  distributors  exclusive  use  of  particular  EPG,  IPG,  interactive  middleware  or  security  software  or  systems  during  its  carriage  negotiations.  While  the  software  solutions  for  interactivity  are  still  emerging, 
 DirecTV  gives  News  Corp.  s  subsidiaries  an  increased  incentive  and  ability  to  discriminate  in  software  and  applications,  or  to  endure  losses  in  one  business  unit  for  the  greater  good  of  the  corporate  whole. 
 Should  problems  emerge,  they  could  be  addressed  through  general  rulemakings  or  through  recourse  to  the  nations  antitrust  authorities. 


 I  sympathize  with  my  colleagues  who  seek  to  resolve  the  placement  of  local  broadcast  stations  on  second  satellite  dishes  under  the  Satellite  Home  Viewer  Improvement  Act.  I  believe  this  can  be 
 accomplished  through  a  general  rulemaking,  and  I  have  been  assured  by  the  Chairman  that  the  Commission  will  resolve  this  issue  early  next  year. 


 I  caution  that  as  a  large  and  prominent  global  media  conglomerate,  it  is  incumbent  on  News  Corp.  to  lead  in  serving  the  overall  public  interest  and  modeling  appropriate  behavior  for  the  industry.  Take  it 
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 or  leave  it  bargaining  tactics  would  not  convince  me  of  a  corporate  commitment  to  good  faith  negotiation.  With  respect  to  diversity  opportunities  within  its  business  units  and  in  its  programming,  I 
 urge  continued  efforts  to  promote  diversity  within  the  Fox  Entertainment  Groups  employment,  management  and  executive  ranks.  I  am  pleased  to  see  a  commitment  by  the  companies  to  increase  the 
 amount  of  programming  on  DirecTV  targeted  at  culturally,  ethnically,  and  linguistically  diverse  audiences.  Given  the  increased  concentration  in  local  media  markets,  I  also  expect  to  see  such  diversity 
 reflected  in  the  coverage  of  issues  of  concern  to  local  communities  or  minority  groups  across  the  country.  Diversity  in  viewpoints  should  be  encouraged  everywhere  in  our  media. 


 I  am  troubled  by  reports  that  Foxs  independent  affiliates  are  having  difficulty  maintaining  their  independence  in  decisions  involving  programming  or  the  use  of  their  digital  spectrum.  Local  control  over 
 programming  is  required  by  law  and  vital  to  our  system  of  American  broadcasting.  It  is  the  local  stations,  after  all,  that  are  accountable  to  the  FCC  for  their  communitys  standards  of  broadcasting. 


 These  many  concerns  call  for  a  more  serious  examination  of  the  concentration  resulting  from  the  merger,  or  other  more  comprehensive  structural  or  behavioral  conditions.  While  this  Order  does  contain 
 some  important  protections,  not  all  the  effects  on  consumers  and  competition  have  been  fully  analyzed  or  remedied  to  assure  fair  competition  and  protection  of  consumer  interests.  I  dissent. 
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