United States General Accounting Office

GAO Report to the Honorable Byron L. Dorgan, U. S. Senate

June 1999 TELECOMMUNICATIONS

Impact of Sports

Programming Costs on

Cable Television Rates

|~Accountabllity * Integrity * Reliability

GAO/RCED-99-136
United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-280705

June 22, 1999

The Honorable Byron L. Dorgan

United States Senate

Dear Senator Dorgan:

The rates that subscribers pay to receive cable television in the United

States have increased at several times the general rate of inflation over the

last few years. Cable operators have attributed these increases to inflation;

programming costs; system upgrades, including increases in the number of

channels; and other factors. However, some cable operators have

attributed increases to the cost of acquiring sports programming, in

particular. In terms of viewership, sports programming is among the

highest-rated programming on cable television.

This report responds to your request that we provide information on the

role that sports programming played in recent increases in cable rates.

Specifically, you asked us to provide information on (1) the extent to

which sports programming costs are contributing to higher cable

television rates; (2) how prices paid for sports programming differ for

small and large cable operators; (3) the extent to which sports

programmers require cable operators to bundle (i.e., combine) sports

programming with other cable programming and how this practice affects

cable rates; and (4) whether the salaries of players in major professional

sports have risen over the last 4 years, and if so, whether this has

contributed to increases in cable rates.

To respond to your request, we reviewed recent studies and public

documents and interviewed representatives from a cross-section of the

cable television industry, including cable companies, programming

networks, federal and state regulatory agencies, and industry trade groups.

Also, we interviewed representatives of major sports leagues. We reviewed

the Federal Communications Commission's (FCC) studies of cable industry

prices covering the years 1995 through 1998 and its 1998 inquiry into cable

rate increases. We analyzed programming cost information we obtained on

15 cable companies from the FCC'S and one state regulatory agency's public

files and convened a panel of experts to discuss issues that you raised. In

some cases, however, we were unable to provide a more definitive

response to the research questions because of limitations on the

availability of information on the costs cable companies incur for

programming, the terms and conditions of programming contracts, and

Page 1 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

certain details covering the sale of sports rights contracts. For a detailed

description of our methodology, see appendix I.

Results in Brief The data we obtained on 15 cable systems and the results from the FCC's

nationwide 1999 Report on Cable Industry Prices indicate that sports

programming has had a limited impact on the rates subscribers pay for

cable television service. Data on the 15 cable systems show that sports

programming accounted for about 6.8 percent of the average monthly

amount that the cable systems charged subscribers during 1997. Also, the

FCC report indicates that sports programming accounted for 7.5 percent of

the increase in a subscriber's average monthly cable bill from July 1, 1997,

through July 1, 1998. However, some cable industry officials believe that

the impact of sports programming costs on cable rates may increase as the

result of recent contractual agreements between cable networks and

major sports leagues.

Because of the limitations on the availability of information on prices paid

for programming and on the terms and conditions of cable programming

contracts, we cannot provide definitive judgments on the differences in

what small and large cable operators pay for sports programming.

According to industry officials, in some cases, small cable operators pay

more than large cable operators for sports programming, such as when

programmers offer discounts based on the number of subscribers a system

has. However, not all cable networks that carry only sports or a

combination of major sports and general entertainment offer such

discounts. Furthermore, many small cable operators have been able to

lower their programming costs by participating in the National Cable

Television Cooperative-an organization that purchases programming on

behalf of its members, most of which are small cable operators. However,

officials of the Cooperative believe their organization does not always

receive discounts comparable to those given to similarly sized, large cable

companies.

Sports networks and networks that offer general entertainment and sports

events frequently require cable operators to bundle their networks with

other programming networks into service packages that are offered to

cable subscribers. Opinions on bundling vary among officials in the cable

industry, with some stating that bundling keeps cable rates down by

providing an economically efficient means of distributing programming

because it lowers transaction and equipment costs for both cable

operators and subscribers. Others, however, believe that bundling limits

Page 2 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

the choices of cable customers and can result in higher cable rates for

customers who are only interested in receiving certain types of

programming.

Over a 4-year period (1994-98), the average player's salary in each of four

major professional sports leagues-the National Football League (NFL),

Major League Baseball (MLB), the National Basketball Association (NBA),

and the National Hockey League (NHL)-has increased by a range of 14 to

64 percent, depending on the sport. During the same period, the prices

cable networks pay to carry major professional sports events have also

increased as have the rates subscribers pay for cable television. However,

the opinions of sports and cable industry officials differ on the extent to

which players' salaries have contributed to cable rate increases. Some

officials believe the increases in salaries have caused the increases in the

fees associated with the rights to televise sports events, which have in turn

led to increases in cable rates. Others believe that players' salary increases

are simply a reflection of increased consumer demand for sports

programming and thus should be viewed as an effect, rather than a cause,

of cable rate increases.

Background Cable television is the major provider of subscription television

programming in the United States, serving over 65 million subscribers as

of June 1998. Overall, there are about 11,000 cable systems nationwide,

most of which are owned by multiple system operators (Mso)-companies

that own two or more systems. The top 10 MSOs serve more than 70

percent of the subscription television video market and have from about

1.3 million to 13.1 million subscribers. In contrast, many individual cable

systems are quite small. Over 6,000 systems have fewer than 1,000

subscribers. Cable television companies compete with other providers of

subscription television services, such as direct broadcast satellite

companies.'

Sports is an important part of cable programming. Sports programming,

such as MLB and NFL games, is referred to as "marquee programming"

because of its attractiveness to cable viewers. Cable television systems

carry sports programming aired by broadcast stations and by cable

networks, including cable sports networks. Included among the 40 cable

'Our forthcoming report, Telecommunications: The Changing Status of Competition to Cable

Television (GAO/RCED-99-158), analyzes the status of competition in the subscription television

market; the extent to which ties between cable companies and program suppliers may be affecting the

development of competition; and the key factors that may influence the development of competition in

the future.

Page 3 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

sports networks are national sports networks, such as ESPN; regional

sports networks that carry games of local sports franchises as well as

other sports programming, such as Fox Sports Northwest; specialized

sports networks, such as the Golf Channel; and sports news channels,

such as CNN/SI. (App. II provides a list of cable sports networks.) In

addition, other cable networks, such as the TNT and FX networks, offer a

mix of major sports programming and general entertainment. Cable

systems pay for programming they obtain through licensing fees that they

pay to cable networks and through copyright fees that they pay for

obtaining distant broadcast television signals.

Generally, sports programming, as well as most other cable programming,

is offered by cable operators as part of one or more bundled service

packages, or "tiers," with each tier consisting of additional channels

provided for an additional cost. The lowest-priced tier is called the basic

tier and includes the retransmission of local broadcast signals; public,

educational, and governmental channels; and any other channels chosen

by the cable operator. Many cable companies also offer one or more

"enhanced basic" tiers (also called cable programming services tiers) that

include advertiser-supported cable networks (such as ESPN, the USA

Network, and MTV) and may also include news and special interest

services. For an additional amount, cable operators also offer premium

services, such as Home Box Office or Showtime, and pay-per-view

services, such as professional boxing and movies.

From July 1995 through July 1998, cable television rates have increased

faster than the general inflation rate as measured by the Consumer Price

Index.2 For example, according to the Bureau of Labor Statistics, between

June 1997 and June 1998, cable rates rose by 7.3 percent, while the

Consumer Price Index increased by 1.7 percent. However, because many

cable companies increased the number of channels they offered during

this period, increases in cable rates are lower on a per channel basis. For

example, according to the FCC'S May 1999 Report on Cable Industry Prices,

average monthly rates for cable companies not facing effective

2

Rates for basic cable service are subject to regulation by states or localities. In some cases, the state

regulates cable television through a state commission or advisory board. In other areas, cable is

regulated by local government entities, such as a city cable commission, city counsel, or board of

supervisors. The FCC had authority to regulate the rates cable companies charged for the cable

programming services tiers; however, the authority expired on March 31, 1999.

Page 4 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

competition3 increased by 6.9 percent during the 12 months ending July 1,

1998, but by only 1.6 percent when considered on a per channel basis. The

average monthly cable rate charged by noncompetitive companies as of

July 1, 1998, was $30.53, of which $27.88 was for programming services

and $2.65 for equipment rentals.4

The Extent of Sports Available data on 15 cable systems in 1997 indicate that, in general, sports programming accounted for about 29 percent of the cable system Programming's Impact operators' programming costs and about 6.8 percent of the monthly

on Cable Television amount that the cable systems charged to their subscribers.5 ,

6

Furthermore, recent FCC studies have found that increases in sports

programming costs have been a relatively minor contributor to higher

cable rates.7 However, sports programming costs may have a greater

impact in the future when the increased costs of recent contract

agreements with major sports leagues are more fully reflected in cable

operators' rates.

3The Communications Act of 1934, as amended, directs the FCC to annually publish statistical reports

on the average rate of a number of items, including basic cable services, of cable systems that the

Commission has found are subject to effective competition compared with those that are not. Whether

effective competition exists is determined using any one of four criteria. For example, effective

competition is deemed to exist where the franchise area is served by at least two unaffiliated

multichannel video programming distributors, each of which offers comparable video programming to

at least 50 percent of the households, and at least 15 percent of the households subscribing to

programming services offered by a multichannel video programming distributor subscribe to services

other than those offered by the largest multichannel video programming distributor. 47 U.S.C.

543(k),().

4The rate for programming services includes programming in the basic tier and most popular cable

programming services tier. Equipment rentals include charges for remote control units and converters

(electronic devices that shift channels transmitted by a cable system to other channels on a

subscriber's television set). According to the FCC's report, rates for competitive cable companies

increased by 5.8 percent overall during the 12-month period ending July 1, 1998, and by 3.6 percent

when viewed on a per channel basis. The average monthly cable rate charged by competitive

companies as of July 1, 1998, was $28.71, of which $26.12 was for programming services and $2.59 for

equipment rentals.

5 Detailed information on the fees that cable system operators pay for cable television programming is

difficult to obtain because of its proprietary nature. As a result, our ability to fully assess the impact of

sports programming costs on cable television rates was limited.

6 Total programming costs accounted for about 23.8 percent of the monthly cable bills that the 15 cable

systems' subscribers paid. Aside from programming costs, subscribers' bills include costs for system

upgrades, channel additions, new equipment, and inflation.

7

We were unable to determine whether there were any changes in the quality of sports programming

that may be related to increases in the cost of sports programming for the 15 cable systems or for the

cable systems covered by the FCC's studies. However, according to the 1998 FCC report, the average

number of channels that noncompetitive cable systems devoted to sports programming increased from

2.6 to 2.9 (11.5 percent) between 1997 and 1998.

Page 5 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

Sports Programming For the 15 individual cable systems we reviewed, fees cable operators paid

Accounted for 29 Percent to obtain programming from cable sports networks accounted on average

of Programming Costs at for about 29 percent of total programming costs in 1997.8 The costs ranged

15 Cable Systems from about 18.6 percent to about 46.2 percent, as shown by figure 1.9

Figure 1: Sports Programming Costs as a Percentage of Total Programming Costs for 15 Cable Systems, 1997

Percentage of programming costs

50

45

40

35

30

25

20 -

15 -

10 -

0 

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Cable systems

Source: Programming cost information from 15 individual cable systems.

8

Data on these systems are not necessarily representative of all cable systems.

9

The fees cable system operators pay for sports networks tend to understate the impact of sports on

cable rates because sports are also carried by other networks. However, data were not available to

determine the degree of the impact of sports on the programming costs of these other networks.

Page 6 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

The monthly sports programming costs for operators of the 15 cable

systems ranged from 74 cents to about $3.00 per subscriber per month.

The number of sports networks carried ranged from one to four and

included ESPN, ESPN2, regional sports networks; and the Golf Channel.

As shown in figure 2, sports programming costs on average represented

about 6.8 percent of the average monthly amount that the 15 cable systems

charged to their subscribers for cable programming. The percentage

ranged from about 3 percent at a system that carried only one sports

network to over 12 percent at a system that carried four sports networks.

Other programming costs accounted for an additional 17 percent of the

monthly amount that the 15 cable systems charged subscribers.

Figure 2: Percentage of the Average

Monthly Amount That the 15 Cable Sports

Systems Charged to Their Subscribers

That Was Attributable to Sports and programming

Other Programming Costs, 1997 costs

6.8%

Other

programming

costs

17.0%

Other

76.2%

Source: Monthly programming cost information on 15 cable systems.

Page 7 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

The FCC's Study Found a In an effort to identify the sources of recent cable television cost

Similar Impact of Sports increases, in 1998 the FCC conducted an inquiry of the top six MSOS that

Programming on Cable provide services to approximately 67 percent of all cable subscribers. In

Rates general, the FCC inquiry's results were similar to what we determined for

the 15 cable systems. The MSOS reported to the FCC that sports

programming, in general, accounted for 26.7 percent of the total

programming fees charged to cable system operators, compared with

about 29 percent for the systems we reviewed. While the FCC inquiry's

results did not include information on the extent to which sports

programming costs contributed to a subscriber's average monthly cable

bill, it did include an analysis of the extent to which sports and other

programming costs contributed to increases in subscribers' cable rates

from July 1, 1995, through July 1, 1996, and from July 1, 1996, through

July 1, 1997.10

Programming Costs Have Data collected by the FCC indicate that total programming cost increases

Contributed to Cable Rate have been a substantial contributor to cable rate increases. For example,

Increases, but the Impact the 1999 Report on Cable Industry Prices shows that, on average, for IncSortas s Pe, amminr noncompetitive systems, rate increases attributable to programming costs

of Sports Programming were about 33.6 percent from 1997 to 1998 and 24.4 percent from 1996 to

Costs Was More Limited 1997.1 The FCC'S 1998 inquiry determined that between 1996 and 1997,

programming costs accounted for 28.2 percent of the increase in

subscribers' cable rates for four of the MSOS that responded.'2 Both reports

also identified other factors that contributed to cable rate increases, such

as inflation, upgrades, and channel additions.

However, compared with the impact of programming costs on cable rate

increases, the impact of sports programming costs has been limited. The

1999 Report on Cable Industry Prices shows that for noncompetitive

systems, sports programming accounted for about 22.4 percent of the

increase in programming costs, or 7.5 percent of the increase in cable

rates, between 1997 and 1998. Between 1996 and 1997, sports

programming accounted for about 19.6 percent of the increase in

programming costs, or 4.8 percent of the increase in cable rates. Similarly,

the FCC'S 1998 inquiry showed that between 1996 and 1997, sports

'°Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming,

Fifth Annual Report, Appendix F (1998).

"Most of the respondents to the FCC's 1998 price survey were noncompetitive systems. Results were

similar for competitive systems.

'

2

While the FCC's inquiry included six MSOs, only four provided complete information covering the

topic.

Page 8 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

programming accounted for about 5.3 percent of the total increase in

rates. Other programming subcategories that both reports identified as

contributing to cable rate increases included news, children's, and other

types of programming.' 3

Figure 3 shows the reasons cable systems reported for increases in

subscribers' average monthly rates, according to the 1999 Report on Cable

Industry Prices.

Figure 3: Factors Affecting Cable Rate

Increases, 1997-98 Sports

programming

costs

7.5%

Other

programming

costs

26.1%

Other costs

66.4%

Note: Other costs include inflation, channel additions, system upgrades, and new equipment.

Source: 1999 Report on Cable Industry Prices, FCC.

l

3

The 1998 inquiry showed that news, children's, and other types of programming accounted for

1.2 percent, 3.2 percent, and 17.6 percent, respectively, of the increase in rates from 1996 to 1997.

Page 9 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

In comparison, our analysis of programming cost increases for 12 cable

systems found that sports programming accounted for about 32.8 percent

of the total increased programming costs between 1996 and 1997.14 For

1998, the projected increases for sports programming at 14 cable systems'5

averaged about 24.1 percent of total programming cost increases.'6

The Impact of Sports While historically sports programming costs have generally had a limited

Programming Costs on impact on cable television rates, the impact could increase in the future.

Cable Rates Could As we describe later in this report, in the last 3 years, each of four major Increase in the ]Future sports leagues has signed contractual agreements that have increased the

amounts that cable networks pay for the cable rights to the leagues'

games. According to several MSO officials, the impact on costs of these

contractual agreements is beginning to be reflected in the prices MSOS are

being charged by the programmers for the sports events. For example,

ESPN's Executive Vice President for Administration told us that cable

operators were notified in April 1999 that ESPN would increase its

programming license fees on August 1, 1999. According to the official, the

August 1 increase is based on several factors, including the value of the

network to consumers and local advertisers; the increasing costs

associated with ESPN's obtaining the cable rights to highly valued sports

programming, such as NFL games; and the relatively high cost of producing

and televising live sports entertainment. The official stated that the net

impact of the rate increase on cable operators will depend on each

operator's contractual agreement with ESPN. These agreements include

varying discounts and incentives that enable cable operators to reduce

program licensing fees. In addition, to help offset licensing fee increases,

ESPN has increased the amount of advertising time that it makes available

to cable operators to sell during ESPN programming. ESPN estimates that

taking into account discounts, incentives, and the growing amount and

value of ESPN's local advertising sales inventory, the net impact of its

wholesale rate adjustments in each of the last 2 calendar years will

average about 10 cents per subscriber per month.

14Information for 1996 was available only for 12 of the 15 cable systems.

151nformation for 1998 was available only for 14 of the 15 cable systems.

'

6 Information, similar to that in the FCC study, on the other factors affecting rates was not available to

us for the 15 systems.

Page 10 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

Small Cable Operators Because of the limitations on the availability of information on prices paid for programming and on the terms and conditions of cable programming Sometimes Pay More contracts, we cannot provide definitive judgments on the differences in

Than Large Operators what small and large cable operators pay for sports programming. for Sports According to interviews with industry officials, small cable operators

sometimes pay more for sports programming because the small number of

Programming their subscribers limits their ability to take advantage of volume discounts

or opportunities to obtain revenue, such as the sale of time used for

advertising during cable network programming. Not all networks that

carry only sports or a combination of sports and general entertainment

programming offer volume discounts, however. Also, many small cable

operators have been able to lower their programming costs by joining the

National Cable Television Cooperative (NCTC), which aggregates its

members' subscribers to collectively purchase programming. Nonetheless,

NCTC officials believe that NCTC does not always receive discounts that are

comparable to those given to similarly sized MSOS.

Small Cable Operators May According to industry officials, small cable operators are likely to pay

Pay More If a Programmer more for sports programming than large cable operators if a cable

Offers Volume Discounts programming network offers price reductions, such as volume discounts, based on the number of a system's subscribers." According to the

American Cable Association (ACA), 18 such discounts exist because large

cable operators have more negotiating power than small cable operators.

Programmers have an incentive to have their programming available to the

greatest number of subscribers possible because, as the number of

viewers increases, so do programmers' revenues from licensing fees and

advertising revenue. Therefore, cable operators with a large subscriber

base can obtain greater concessions, such as volume discounts, from

programmers than small cable operators.' 9

'

7

Aside from volume discounts, some sports programming networks offer other incentives that can

reduce programming costs. These include discounts for locating a programmer's network on the VHF

band (i.e., channels 2 through 13), locating a network next to another programming network offered by

the same company, and carrying on the channel lineup two or more affiliated networks that are owned

by the same programming company.

'

8ACA, formerly the Small Cable Business Association, is a nationwide trade association representing

approximately 300 small cable businesses that collectively serve more than 2.3 million subscribers.

m

9

According to comments submitted to the FCC by Ameritech New Media, Inc., regarding cable

television ownership rules, to be economically viable, a programming network needs to reach a critical

mass of viewers, which has been estimated to be approximately 20 million subscribers. To reach that

level, a programmer must reach agreement with one or more of the largest MSOs. As a result, the large

MSOs possess significant leverage in negotiating price reductions.

Page 11 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

Information we obtained indicates that the extent to which sports

programming networks offer volume discounts varies. For example, one

prominent sports programming network provided eligible cable operators

with volume discounts ranging from 1 to 6 cents per subscriber. The

lowest discount was for cable operators with 250,000 to 499,000

subscribers, and the highest discount was for operators with 1.5 million or

more subscribers. The network's programming must reach at least

95 percent of the cable operator's subscribers for the operator to be

eligible for a discount. Network officials told us that the number of

subscribers needed to qualify for the discounts was recently lowered to

assist cable operators in coping with programming cost increases.

However, another popular sports programming network and a few popular

networks that offer a combination of general entertainment and major

sports events 20 did not offer volume discounts as a way of reducing

programming service fees. According to an official representing one

regional cable sports programming network, the per subscriber

programming costs for small and large cable operators are essentially the

same because the network bases its licensing fees on the proximity of a

cable system's subscribers to the sports event and on the percentage of a

cable operator's subscribers receiving the service. Also, some industry

officials told us that several popular networks that offer a combination of

general entertainment and major sports events do not offer any volume

discounts because they are widely distributed and few cable systems could

afford not to carry them. The officials said that while volume discounting

is a fairly common practice among cable networks, it tends to be used

more by newer programming networks and those with limited distribution.

Small Cable Operators Are According to industry officials, the net cost of sports programming may

Likely to Have Higher Net also be higher for small cable operators because they take in less in

Program Licensing Costs advertising revenue and are less able to take advantage of some of the

Than Larger Operators other incentives that offset programming costs. Small and large cable companies generally receive a portion of the advertising time that is

available within cable programming offered on their systems. For

example, one sports network provides cable operators with 2 minutes of

local advertising per hour during its programming, which represents a

2°Programming networks that offer a combination of general entertainment and major sporting events

include TNT, TBS, and FX

Page 12 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

revenue source for cable operators.21 According to network officials,

80 percent of cable operators sell advertising during each 2-minute period.

The officials also stated that to help cable operators cope with rising

programming costs, the network recently increased the number of

30-second advertising units available during a 1-hour period. It also

lowered the number of subscribers that cable operators' systems needed

to be able to take advantage of volume discounts.

However, according to officials representing small cable operators, the

size of their markets limits their ability to sell advertising during the time

allotted for local advertising. For example, NCTC officials estimate that a

cable system needs at least 5,000 subscribers to break even with the costs

incurred to develop an advertising sales and production department. They

noted that most of their members' cable systems have fewer than 5,000

subscribers.

Net licensing fees for small cable operators may also be higher because

small cable operators have difficulty taking advantage of, or negotiating

for, some of the other incentives available to both small and large

companies, such as marketing support-that is, funding to advertise

programming networks-and cash or other incentives. However, the

magnitude of these incentives is unclear. Representatives for small cable

operators we spoke with stated that it is difficult for small companies to

utilize marketing support money because they have limited markets and

few media outlets on which to spend promotion funding. An industry

official we spoke with also said that it is common practice in the cable

television industry for programming networks, including sports

programmers, to provide cash or other incentives to cable operators in

return for airing promotional advertising in the local market. The official

said that many small cable operators are unable to take advantage of these

incentives because they do not have a sufficient number of subscribers to

justify the investment necessary to sell, produce, and insert promotional

advertising into cable programming.

2 t

Total cable advertising revenues in 1998 were about $9.079 billion, including $2.214 billion for local

and spot cable advertising, $305 million for advertising on regional sports networks, and $6.560 billion

for advertising on network cable. For the six MSOs responding to the FCC's 1998 inquiry, the average

local advertising revenues represented 7.9 percent of the average revenues of regulated cable systems.

Page 13 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

Small Companies Can Now Many small cable operators now purchase sports and other types of

Purchase Programming programming collectively through NCTC, which negotiates master contracts

Through the National with programming networks on behalf of its members. Currently, NCTC,

Cable Television which has about 925 cable operator members representing 6,300 cable

systems, has contracts covering 85 programming networks. The combined Cooperative amount of NCTC members' subscribers (10.5 million) would make it the

third largest MSO. By purchasing programming through NCTC, small cable

operators are capable of obtaining volume discounts comparable to those

acquired by large MSOS. But, according to NCTC officials, NCTC does not

always receive the discounts that a comparably sized MSO would receive.

Industry officials told us that NCTC is still limited in its ability to negotiate

the best possible terms with programming networks because large MSOS

can promise delivery of a certain number of subscribers while NCTC can

only promise to present offers to its members. In addition, according to

ACA, while buying groups such as NCTC have had some success obtaining

cost savings for national programming, they have not been successful in

obtaining cost savings for local or regional programming, such as regional

sports networks. Moreover, ACA has indicated that neither it nor NCTC has

any assurance that current programmers will renew their existing NCTC

contracts when they expire. Furthermore, some industry officials believe

that because many small cable operators continue to have fewer

opportunities for mitigating cost increases, in the near future, small cable

operators will pay more than large operators as the higher costs of

recently signed sports rights agreements are passed on to cable operators.

Cable Networks Our discussions with cable industry officials and our analysis of information provided by cable operators indicate that sports networks and

Generally Require networks that offer a combination of general entertainment and sports

Bundling, but Views events generally require the bundling of their programming with other

cable networks on the basic or enhanced tiers of service. However,

on Its Effect on Rates opinions on the effect that bundling has on cable rates were mixed.

Vary

Limited Information Information obtained from discussions with cable operators, cable

Indicates That Sports programming networks, and other cable industry representatives indicates

Networks Frequently that sports networks and networks that offer general entertainment and

Require Program Bundling sports events frequently require their networks to be bundled with other

programming networks in specific tiers. For example, an official with a

large MSO stated that most of the cable programming networks, including

sports programming networks, require that their networks be located on

the basic or enhanced basic tier of service. An official of a large MSO and

Page 14 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

major distributor of cable programming stated that sports programming

networks pressure cable operators to bundle their networks with other

programming networks because it increases the potential for viewers and,

thus, can increase the network's advertising revenue.

Information we obtained indicates that the specific bundling arrangements

required by networks vary. For example, one sports network required that

its programming be provided either on the operator's basic tier or on an

enhanced basic tier that contained no fewer than 10 other first-quality

cable programming networks. Another sports network required that its

programming be distributed as part of basic service, enhanced basic

service, or a third-tier service. If the programming was offered on the third

tier, the network required that the tier be received by at least 30 percent of

the operator's subscribers and that it contain at least four other cable

programming networks. However, the network also allowed the cable

operator to distribute the network on an a la carte basis22 so long as the

system also offered the network as part of a third tier in which each other

programming network was also offered on an a la carte basis. Yet another

network that offers general entertainment and major sporting events

required that its programming be received by an aggregate of at least

90 percent of the total subscribers throughout all the MSO's systems and

that it not be offered solely as an a la carte service on any system.23

In addition to having specific bundling requirements, sports networks and

networks that offer general entertainment and major sporting events also

frequently employ fee structures whereby the amount cable operators pay

for programming decreases as the percentage of subscribers who receive

the service increases, according to information we received. For example,

one network's fees were broken into three price levels. The lowest fee was

charged to a cable operator that provided the network's programming as

part of its service to 95 percent or more of the operator's subscribers. The

level increased by about 11 percent per subscriber if more than 85 percent

but less than 95 percent of subscribers received the network and by an

additional 18 percent if less than 85 percent of the operator's subscribers

received the network. Another network provided a discount if the total

2 2Programming offered on an a la carte basis allows cable subscribers to purchase channels

individually.

'

3

Information we obtained from cable operators also indicates that some sports networks that

previously were available on an a la carte basis have tried to convince operators to move the networks

to the enhanced basic tier. A 1998 study conducted by Economists Incorporated also found that there

has been a migration of regional sports networks from a la carte programming to cable operators'

enhanced service tiers. How Bundling Cable Networks Benefits Consumers (Washington, D.C.:

Economists Incorporated, Feb. 28, 1998), p. 6.

Page 15 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

number of cable system subscribers receiving the network was above

80 percent. The discount increased for each percentage point that the

number of subscribers exceeded the 80-percent level.

Differing Views Exist on Views on the effect of bundling vary. According to many cable industry

the Effect That the officials, the bundling of cable television programming is economically

Bundling of Cable efficient. For example, an official representing a large MSO commented that

the bundling of cable networks is the most efficient means of providing Programming Networks cable programming for cable customers. Having numerous tiers of service

Has on Cable Rates or a la carte programming would increase costs and, therefore, increase

cable rates, the official stated. A 1998 industry-sponsored study by

Economists Incorporated reported that without bundling, all subscribers

would have to pay the additional costs of adding and deleting channels

since the cable operator would likely have to add additional customer

support and technical staff to deal with the increased number of calls. The

study also reported that many cable subscribers would have to purchase

or rent additional pieces of equipment, like converter boxes, since cable

operators would probably scramble unbundled channels to prevent

unauthorized subscribers from viewing them. The study cited a National

Cable Television Association estimate that the rental rate of a converter

box is about $3.20 per month. A panel of experts we commissioned agreed

that the bundling of cable programming, to at least some extent, results in

economic efficiencies and thereby helps in minimizing cable rate

increases.2 4

The Economists Incorporated study, as well as some industry officials we

contacted, stated that unbundling cable programming would not be in the

best interest of cable subscribers. For example, one sports network

official indicated that unbundling would lead to fewer subscribers

receiving the network, which would result in decreased advertising sales

because a smaller audience share would be viewing the programming. The

loss in advertising sales could then lead to cable operators' raising cable

rates to make up the loss in revenue from advertising. An official of a

major broadcast network also indicated his concern by stating, "If forced

in an a la carte direction, the cost to the consumer of each individual

channel will necessarily go up, and the number of people subscribing to

various services will accordingly shrink."

Other officials believe that bundling limits the choices of cable customers

and that cable operators should seriously consider a la carte programming.

24For a list of the expert panel members, see app. III.

Page 16 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

For example, one of the experts on the panel we commissioned

commented that even if economic modeling indicates that bundling is

more efficient for cable operators and consumers, consumers do not feel

they are benefiting. The panelist commented that, after complaints about

rates, the lack of choice in the number and types of networks they receive

is consumers' second most frequent complaint about cable television.

An official of one large MSO indicated that the cable industry should take a

serious look at offering a la carte programming because "choice" is a

good marketing banner. Another official representing a large MSO

commented that his company would like to offer sports networks on an a

la carte basis because it could provide a more economical package of

other kinds of programming to non-sports fans. The official continued by

saying that the MSO might be able to add more subscribers if it could better

package its programming.

Differing Views Are Held Some cable industry officials we talked with indicated that the

on the Future of Bundling implementation of new technologies, such as digital cable, and the

increasing number of programming networks that a cable operator can

carry will lead to more tiers of service but not necessarily to a transition to

a la carte programming whereby subscribers can choose each channel

they want. For example, an official representing a large MSO commented

that as cable moves to a digital format, programming provided on smaller

tiers or a la carte will be easier for cable operators to offer because of the

new technology. However, another MSO official pointed out that even if a la

carte programming eventually becomes a reality, there would still be a

need for a basic tier of service; placing new programming networks on a

basic tier gives them an opportunity to attract an audience. According to

the panel of experts we commissioned, there is at least a moderate

likelihood that system upgrades and new technology will result in cable

operators' offering programming on an increased number of tiers within

the next few years. But even if additional tiering occurs because of digital

technology, it may not necessarily mean that existing networks, including

sports networks, will move into the new tiers-only that new

programming networks will be added to the additional service tiers.

Page 17 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

Players' Salaries Have Players' salaries in four major sports leagues-the NFL, MLB, NBA, and

NHL-have increased during the last 4 years as have the amounts that cable

Increased, but Views system operators have paid to acquire the rights to air the leagues' games.

Differ on the Extent Cable subscribers' rates have also increased during this period. However,

views differ on the extent to which players' salary increases have to Which Salary contributed to rises in cable rates.

Increases Have

Contributed to Rises

in Cable Rates

Players' Salaries and Team Data we obtained from the sports leagues indicate that average player

Payrolls Have Increased salaries in each league increased between the 1994-95 and the 1997-98

During the Last 4 Years seasons. However, as shown in table 1, the percentage of these increases

varied widely from league to league. While average salaries for NHL players

increased by 64 percent, average salaries for MLB players increased by only

14 percent.

Table 1: Average Player Salaries in

Four Major Professional Sports National Major National National

Leagues Football League Basketball Hockey Season League" Baseballa Association League

1994-95 $588,000 $1.154 million $1.8 million $733,000

1997-98 $720,000 $1.314 million $2.6 million $1.2 million

Percentage

increase 22% 14% 44% 64%

Note: Average player salaries are in nominal dollars.

aThe average salaries shown for the NFL and MLB are for the 1994 and 1997 seasons, which,

with the exception of the NFL playoffs, extend through a single calendar year. The NHL and NBA

seasons begin in the fall of one year and end during the late spring of the following year.

As shown in table 2, average team payrolls for the three leagues for which

information was available also increased during the same period. The

increases ranged from 19 percent for NFL teams to 47 percent for NBA

teams. We were not able to obtain team payroll information from the NHL.

Page 18 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

Table 2: Average Team Payrolls of

Major Professional Sports Leagues National Major National

Football League Basketball

Season League" Baseballa b Association

1994-95 $34.1 million $31.377 million $22.7 million

1997-98 $40.7 million $38.775 million $33.3 million

Percentage increase 19% 24% 47%

Note: Average team payrolls are in nominal dollars. Payroll figures for the NFL include salaries,

bonuses, and some standard league benefits. Figures for MLB and the NBA include salaries and

bonuses only.

aThe average payrolls shown for the NFL and MLB are for the 1994 and 1997 seasons, which,

with the exception of the NFL playoffs, extend through a single calendar year. The NBA season

begins in the fall of one year and ends during the late spring of the following year.

bin 1997, there were 826 players on MLB's active roster, compared with 761 players on the active

roster in 1994. Additional players were also on the disabled list in 1997.

Much of the attention that has been given to increases in players' salaries

may, however, stem from the increases in salaries received by the leagues'

star players. The salaries for such players have, in some cases, increased

at a much higher rate than average player salaries. For example, available

data indicate that the average salaries received by the five highest-paid NBA

and MLB players have more than doubled since 1994. According to one of

the expert panelists, unlike in most markets, there are a limited number of

top sports stars, which gives them an increased ability to raise the prices

paid for their services.

Prices Paid by Cable Since 1996, each of the four major sports leagues has signed new

Networks to Carry the agreements with cable and broadcast networks for the rights to its games.

Major Sports Leagues' It is difficult to compare precisely the amounts cable networks paid under

Games Have .ncreased the new and old agreements because the specific terms of the agreements

are proprietary and the rights acquired may vary. However, the available

information indicates that the amounts that cable networks paid under the

new agreements are substantially higher than what they paid under the

previous contracts. 25

In August 1998, the NHL approved Disney's 5-year $600 million offer for the

television rights to air NHL games on ABC and ESPN. It is expected that

ESPN will pay approximately $70 million per season for this package.

Under the prior agreement, ESPN is reported to have paid $100 million for

seven seasons (about $14 million per season). According to an NHL

25Teams also obtain revenues from cable networks and broadcast stations under other agreements for

the local and regional rights to their games.

Page 19 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

representative, under the new agreement, ABC and ESPN have exclusive

rights to televise twice as many games as ESPN did under the previous

agreement.

In January 1998, ABC and ESPN, CBS, and Fox signed 8-year broadcast

and cable rights agreements totaling about $18.3 billion to air NFL games.

ABC and ESPN made a combined bid of $9.4 billion to air games from 1998

to 2005. Of this figure, $4.8 billion ($600 million per season) is allocated to

ESPN for the Sunday Night Football cable package, the NFL Prime Time

highlights show, and other related programming. Under the prior

agreement, which covered the 1994 through 1997 seasons, the rights to

televise NFL programming on broadcast and cable television sold for about

$4.4 billion.

In November 1997, the NBA entered into a 4-year broadcast rights

agreement with NBC Sports, Inc., and a 4-year cable rights agreement with

Turner Broadcasting System (TBS), Inc. Combined, these contracts totaled

$2.6 billion. This includes the cost paid by TBS-$890 million-an increase

of about 153 percent over the company's previous 4-year contract of

$352 million, which expired after the 1997-98 season.

In 1996, MLB signed 5-year agreements totaling about $1.7 billion with Fox,

NBC, and ESPN for the broadcast and cable rights to MLB games. Fox and

NBC collectively paid about $1.1 billion for the broadcast rights, and Fox

and ESPN collectively paid about $600 million for the cable rights. The

information needed to compare these amounts with the amounts that TBS

and ESPN paid for rights under the previous agreements with MLB was not

available.

Views Differ on the Effect The views of the cable industry and sports league officials we talked with

of Players' Salaries on differed on whether increases in players' salaries have contributed to rises

Cable Rates in cable rates. Some cable industry officials said they believed that the salary increases have contributed to higher cable rates. While most stated

that they were not experts in this area, their observations of the sports and

cable television industries led them to believe that salaries have driven up

fees charged to televise sports, which in turn have driven up cable rates.

For example, one representative of a major MSO and programmer noted

that while sports stars' rising salaries were not the only cause of cable rate

increases, they were surely one of the causes.

Page 20 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

On the other hand, most members of our expert panel, as well as some

cable industry officials, said that players' salaries should not be viewed as

a cause of increases in cable rates. More specifically, five of the seven

panel members believed that increases in players' salaries had caused

increases in cable rates to little or no extent, while one panelist believed

that they had caused increases to a moderate extent. In addition,

according to the NFL, players' salaries do not cause the NFL to charge higher

fees for televising professional football games because, under the league's

"salary cap" system, what teams spend on players is a direct function of

leaguewide revenues.2 6 For example, if television revenues increase in any

year, the salary cap increases and teams are able to spend more on

players' salaries. If television revenues remain constant, however, the

teams' spending on players is unchanged.

Several panelists pointed to the increases in broadcast and cable rights

fees and players' salaries as a reflection of increased consumer demand

for major professional sports. In this regard, one of our experts stated that

cable operators and programmers recognize the demand and try to satisfy

it, thereby bidding up the prices in the market, including players' salaries.

Another panelist agreed that increases were related to demand but said

that additional factors also come into play. For example, he said that while

movies and other types of programming are available on more outlets, the

major sports leagues have one product that can be broadcast one time,

thus giving them market power. In addition, he noted that with the

plethora of new cable channels, it has become more important for

individual networks to form distinct identities, such as being identified as

the carrier of a major sports league like the NFL. This, he believed, had

fueled competition among networks for the leagues' rights and had led to

the high prices paid. Thus, increases in players' salaries may be viewed as

an effect rather than a cause of cable rate increases.

Agency Comments We provided the FCC with a draft of this report for its review and comment.

The FCC stated that our report was not inconsistent with the FCC'S own

research on the subject. The FCC also provided some technical comments,

which we incorporated into the report as appropriate. The FCC'S comments

appear in appendix IV.

26The NFL receives leaguewide revenues from a variety of sources, including the sale of broadcast and

cable rights for league games. These revenues are divided among the teams in the league. According to

the NFL, each year, each NFL team knows the amount of the salary cap available to it before it begins

to sign free agents or to draft players.

Page 21 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
B-280705

We performed our work from July 1998 through June 1999 in accordance

with generally accepted government auditing standards.

As arranged with your office, unless you publicly release its contents

earlier, we plan no further distribution of this report until 14 days after the

date of this letter. At that time, we will provide copies to William E.

Kennard, Chairman, Federal Communications Commission, and other

interested parties. We will also make copies available to others on request.

Please call me at (202) 512-7631 if you or your staff have any questions.

Major contributors to this report are listed in appendix VI.

Sincerely yours,

Judy A. England-Joseph

Director, Telecommunications Issues

Page 22 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Page 23 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Contents

Letter 1

Appendix I 26

Scope and

Methodology

Appendix II 30

Cable Sports

Programming Services

Appendix III 31

Expert Panel

Participants

Appendix IV 32

Comments From the

Federal

Communications

Commission

Appendix V 33

Sampling Error of

Estimates From FCC's

May 1999 Report on

Cable Industry Prices

Appendix VI 34

GAO Contacts and

Staff

Acknowledgements

Tables Table 1: Average Player Salaries in Four Major Professional 18

Sports Leagues

Page 24 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Contents

Table 2: Average Team Payrolls of Major Professional Sports 19

Leagues

Figures Figure 1: Sports Programming Costs as a Percentage of Total 6

Programming Costs for 15 Cable Systems, 1997

Figure 2: Percentage of the Average Monthly Amount That the 15 7

Cable Systems Charged to Their Subscribers That Was

Attributable to Sports and Other Programming Costs, 1997

Figure 3: Factors Affecting Cable Rate Increases, 1997-98 9

Abbreviations

ACA American Cable Association

FCC Federal Communications Commission

GAO General Accounting Office

MLB Major League Baseball

MSO multiple system operator

NBA National Basketball Association

NCTC National Cable Television Cooperative

NFL National Football League

NHL National Hockey League

TBS Turner Broadcasting System

Page 25 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix I

Scope and Methodology

To determine the extent to which sports programming costs are

contributing to higher cable television rates, we reviewed reports from the

Federal Communications Commission (FCC) on cable industry prices

covering the years 1995 through 1998, reviewed its 1998 inquiry into cable

rate increases for six multiple system operators (Mso), and analyzed

information we obtained on 15 cable systems.

The FCC'S Report on Cable Industry Prices collects data from a statistical

sample of cable operators on a variety of fees and revenues associated

with the provision of cable television programming services. While the FCC

has issued the report since 1993, the 1999 report is the first one in which

the Commission included questions about the cost of cable programming

and associated advertising revenues by type (i.e., sports, news, children's,

general entertainment). The FCC included questions about the cost of

programming by type because of concerns about the impact of sports

programming, in particular, on increases in cable rates. The 1999 Report

on Cable Industry Prices covers the periods July 1, 1996, to July 1, 1997,

and July 1, 1997, to July 1, 1998. The 1997 report covers the periods July 1,

1995, to July 1, 1996, and July 1, 1996, to July 1, 1997. Because the FCC'S

reports on cable industry prices are based on a sample of cable operators,

rather than all operators, statistics in the report are subject to sampling

error. The sampling errors for the statistics we used from the FCC'S reports

are provided in appendix V. We did not independently verify the FCC'S

estimates.

The FCC'S 1998 inquiry into cable rate increases provided information on

recent cost increases for cable television programming that the FCC

collected from the nation's six largest MSOS. Collectively, the MSOS serve

about 67 percent of all cable subscribers. With the inquiry, the FCC sought

to build on information that was gathered in the 1997 Report on Cable

Industry Prices. While all six MSOS responded, not all respondents provided

complete information on every question. The participants provided several

reasons for not responding fully, including the unavailability of the

requested data, the inability of the MSOS to compile the data in the

requested format, and the MSOS' unwillingness to share the requested data

because of their proprietary or competitively sensitive nature. However, at

least four respondents provided consistent information for most of the

questions. The results of the inquiry, therefore, are largely based on four

responses.

From FCC public files and from public files at the state regulatory office in

Massachusetts, we obtained data on the licensing fees that 15 cable

Page 26 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix I

Scope and Methodology

systems incurred for cable programming. The cable systems were part of

three large MSOS and one medium-sized MSO, which, combined, represented

about 28 percent of cable subscribers nationwide. The systems served

subscribers in six states. According to available data, the number of

subscribers for the 15 systems ranged from about 400 to over 90,000. The

information we obtained primarily covered the programming costs for the

basic tier and the cable programming service tier. The data reflect the

cable operators' programming costs for each of their channels on a per

subscriber, per month basis.

To determine the percentage of programming costs that were attributable

to sports programming for the 15 cable systems, we compared the

systems' monthly cost (on a per subscriber basis) for carrying the sports

networks included in their basic or enhanced basic tiers to the systems'

total cost of programming included in their basic and enhanced basic tiers.

The total programming costs that we used included both costs for cable

networks and for copyright fees. To compare sports programming costs to

subscribers' monthly bills, we compared the monthly cost (on a per

subscriber basis) that the cable systems incurred for carrying sports

networks included in their basic or enhanced basic tiers to the monthly

amount that the systems charged customers for subscribing to basic and

enhanced basic service. We used data from January 1997 for these

analyses. We obtained information on the ,rates paid by subscribers from

the FCC'S public files, from one state regulatory agency's public files, and

directly from cable operators and Msos. As discussed in the report, we

recognize that this analysis tends to understate the impact of sports

programming on programming costs and cable rates because sports are

also carried on other cable channels. To calculate the increases in

programming costs that are attributable to sports programming, we

compared the increases in the costs that cable systems incurred for

carrying sports networks to the total increases in costs for programming

that they included in their basic and enhanced tiers. We used data from

1997 and 1998 for this analysis.

To provide information on differences in what sports programmers charge

small and large cable operators for programming, we interviewed

representatives of large and small cable companies, cable programming

networks, state and federal regulatory agencies, cable trade associations,

and a cable program buying cooperative and reviewed information they

provided. We also obtained information from a panel of seven experts we

convened on subscription television issues and analyzed data from the

Page 27 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix I

Scope and Methodology

1999 Report on Cable Industry Prices on the impact of sports

programming costs on small, medium, and large cable operators.

To determine the extent to which sports programmers require cable

operators to bundle sports programming with other cable programming

and the effects that the bundling of cable programming has on cable rates,

we interviewed and reviewed information provided by officials

representing cable companies, sports programming networks, over-the-air

broadcast networks, a cable association, and a cable program buying

cooperative. In addition, we reviewed documents of three cable

companies containing specific bundling requirements that cable

programming networks set forth in their agreements with these

companies. We also obtained information from the panel of seven experts

on the effects of bundling and obtained information from a study

conducted by Economists Incorporated that discusses how bundling

benefits cable subscribers.

To provide information on trends in players' salaries and their relationship

to cable rate increases, we interviewed cable industry officials and

obtained information from public sources, professional sports leagues,

and our expert panel. To obtain information on increases in average

players' salaries and team payrolls (1994-95 through 1997-98) for four

major sports leagues-the National Football League, Major League

Baseball, the National Basketball Association, and the National Hockey

League-and, recent prices cable networks paid for the rights to air games,

we used data from cable and broadcast industry trade periodicals and

sports Web sites. The leagues confirmed data we had obtained and

supplied correct or missing information.2 7 Also, during our expert panel,

we asked the seven participants to address the question of whether

salaries of players in professional sports had risen over the last 4 years

and, if so, whether this contributed to increases in cable rates. At the

conclusion of the panel, we administered a survey instrument that allowed

the participants to indicate the extent to which they believed players'

salaries contribute to increases in cable rates.

To accomplish our assignment, we also received assistance from Professor

Douglas Gomery of the College of Journalism, University of Maryland,

College Park, who specializes in media studies. Professor Gomery

reviewed and commented on our overall methodology. In addition, he

conducted research on sources of information on sports programming

27We were unable to obtain confirmation from Major League Baseball on prices cable networks paid

for the rights to air professional baseball games.

Page 28 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix I

Scope and Methodology

costs; differences in the prices small and large cable operators pay for

sports programming; cable programming bundling practices; players'

salaries and leagues' payrolls; and the impact of players' salaries on cable

rates. Professor Gomery also reviewed and commented on our final report.

Page 29 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix II

Cable Sports Programming Services

American Sports Classics

BAY TV

Classic Sports Network

CNN/SI

Comcast SportsNet

Empire Sports Network

ESPN

ESPN2

ESPNews

Football Channel

Fox Sports Americas

Fox Sports Arizona

Fox Sports Bay Area

Fox Sports Northwest

Fox Sports Pittsburgh

Fox Sports Rocky Mountain

Fox Sports South

Fox Sports Southwest

Fox Sports West

Fox Sports West 2

Golf Channel

Home Team Sports

Jock Talk TV

Little Leaguers Sports/News Network

Madison Square Garden Network

Midwest Sports Channel

New England Sports Network

NewSport

NTN Entertainment Network

PASS Sports

Prime Network

Speedvision Network

SportsChannel Chicago

SportsChannel Florida

SportsChannel New England

Sports Channel New York

SportsChannel Ohio

SportsChannel Pacific

SportsChannel Philadelphia

Sunshine Network

Source: The Federal Communications Commission.

Page 30 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix III

Expert Panel Participants

Dale Hatfield, Chief, Office of Engineering and Technology, Federal

Communications Commission

Thomas W. Hazlett, Professor and Director of Telecommunications Policy,

University of California at Davis, and Resident Scholar, American

Enterprise Institute

Gene Kimmelman, Co-Director, Washington Office, Consumers' Union

Robert Pepper, Chief, Office of Plans and Policy, Federal Communications

Commission

Donald J. Russell, Chief, Telecommunications Task Force, Antitrust

Division, U.S. Department of Justice

David Waterman, Associate Professor, Department of

Telecommunications, Indiana University

Steven S. Wildman, Director, Telecommunications Science, Management

and Policy Program, Northwestern University

Page 31 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix IV

Comments From the Federal

Communications Commission

Federal Communications Commission

Washington, D.C. 20554

May 18, 1999

Judy A. England-Joseph

Director, Telecommunications Issues

General Accounting Office

Washington, DC 20548

Dear Ms. England-Joseph:

Your draft report entitled Telecommunications: Impact of Sports Programming Costs on Cable Television Rates (GAO/RCED-99-136, Code 385758) has been reviewed in the

Cable Services Bureau. It is my understanding that staff comments on the draft report have been forwarded to you previously. We have no additional concerns with the report.

Its conclusions are not inconsistent with those found in the Commission's own research.

We appreciate very much the opportunity to review and comment on the draft report.

Sincerely,

Deborah A. Lathen, Chief

Cable Services Bureau

Page 32 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix V

Sampling Error of Estimates From FCC's

May 1999 Report on Cable Industry Prices

Because the FCC'S price survey is based on a nationwide sample of cable

systems, estimates from the survey are subject to sampling error. The

following table contains the sampling errors for all the estimates we used

from the FCC's 1998 price survey. Some of these estimates and sampling

errors were contained in the May 1999 Report on Cable Industry Prices.

The table does not include sampling errors for competitive cable systems

because, in conducting the price survey, the FCC sampled all available

competitive cable systems.

Sampling

error of

Description Estimate estimated

Percentage increase in rates for noncompetitive cable

systems from July 1, 1997, through July 1, 1998 6.9 0.5

Percentage increase in rates per channel for

noncompetitive cable systems from July 1, 1997, through

July 1, 1998 1.6 0.7

Average monthly cable rate for noncompetitive systems as

of July 1, 1998 $30.53 $0.35

Average monthly programming services rate for

noncompetitive systems as of July 1, 1998 $27.88 $0.33

Average monthly rate for equipment rentals for

noncompetitive systems as of July 1, 1998 $2.65 $0.10

Percentage increase in rates attributable to programming

costs for noncompetitive systems from July 1, 1997, to July

1, 1998 33.6 7.7

Percentage increase in rates attributable to programming

costs for noncompetitive systems from July 1, 1996, to July

1, 1997 24.4 3.4

Percentage increase in programming costs attributable to

sports programming costs for noncompetitive systems from

July 1, 1997, to July 1, 1998 22.4 2.5

Percentage increase in rates attributable to sports

programming costs for noncompetitive systems from July

1, 1997, to July 1, 1998 7.5 2.3

Percentage increase in programming costs attributable to

sports programming costs for noncompetitive systems from

July 1, 1996, to July 1, 1997 19.6 7.5

Percentage increase in rates attributable to sports

programming costs for noncompetitive systems from July

1, 1996, to July 1, 1997 4.8 2.1

Note: Estimates from the May 1999 report.

aSampling errors are stated at the 95-percent level of confidence based on standard errors

provided by the FCC. They were computed as 1.96 times the standard errors provided by the

FCC.

Page 33 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates
Appendix VI

GAO Contacts and Staff Acknowledgements

GAO Contacts Judy A. England-Joseph, (202) 512-7631 Richard A. Hale, (202) 512-3090

Acknowledgments In addition to those named above, Charles E. Wilson, Jr., Karen E. Bracey, Richard C. LaMore, Andy C. Clinton, Michael R. Volpe, and Mindi G.

Weisenbloom made key contributions to this report.

(385758) Page 34 GAO/RCED-99-136 Sports Programming Costs and Cable TV Rates