NEWS CORP., GM, HUGHES DEFEND DEAL AGAINST OPPONENTS
News Corp., GM and Hughes told the FCC that the more than 40 separate conditions proposed by opponents their proposed acquisition deal indicated that “what the commenters fear is not that News Corp. and Hughes will act anticompetitively, but rather that they will compete more efficiently.” In their reply comments, they addressed many of what they called the “parade of horribles that would allegedly result,” citing “vertical foreclosure” as the most common.
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A “vertical foreclosure” strategy would combine programming assets (Fox) and distribution assets (DirecTV) with the intention of hurting rivals, they said. In the context of their proposal, they said the strategy would “have no basis in fact or in sound economic theory” but would have the real consequence of hurting News Corp.’s revenue: “To recoup these losses, [News Corp.] would have to gamble that a sufficient number of subscribers from the foreclosed [multichannel video program distributors (MVPDs)] would be motivated to subscribe to DirectTV, or that DirecTV could unilaterally raise its price without losing subscribers.”
Vertical foreclosure would be more of a concern if the combination of the companies resulted in larger market power, the companies said: “[I]n markets where there is a cable operator, DirecTV is a distant 2nd or 3rd in subscribership, with the local cable company holding a share that generally is about 8 times that held by DirecTV (10.1% vs. 80.7%)… [B]ecause News Corp. has no MVPD assets in the [U.S.], it will also be true after the proposed transaction is consummated,” they said.
If foreclosure were profitable, they said, a contract between News Corp. and DirecTV could have been implemented already and the “failure to recognize this as a possibility is a significant flaw in the commenters’ economic analysis.” That possibility makes irrelevant the anticompetitive effects raised in the proceeding, they said, because they weren’t specific to the transaction. “The fact that News Corp. and DirecTV have not entered into such agreements is strong evidence that the foreclosure strategies proffered by the commenters are in fact not economically rational,” they said.
As for the value of Fox’s broadcast programming and regional sports networks (RSNs), they said DirecTV’s market share would have to quadruple for News Corp. to profit from refusing retransmission consent. Exorbitant price increases wouldn’t work either because of the risk that MVPDs would refuse to carry the programming and subscribers would reject the higher rates, they said: “Even such highly popular programming cannot create subscriber movements or support price increases of this magnitude.”
Meanwhile, the Center for Digital Democracy (CDD), which previously had submitted comments, replied jointly with the Consumer Federation of America (CFA), the Consumers Union (CU) and the Media Access Project (MAP), saying that the advent of a deal combining News Corp. and DirecTV would make a “troubling situation” in media concentration “much worse.” The deal threatens to “seriously harm meaningful competition between media companies in this nation,” they said, especially since the relaxation of the media ownership rules (CD June 3 p1). Although News Corp. has said its programming will remain accessible, the consumer groups said, a loophole remains in terms of what outside programming will be chosen for DirecTV and the close relationship between News Corp. and programming provider Liberty Media. The consumer groups also contended that the deal wouldn’t increase “meaningful competition” between DBS and cable or prevent cable price increases: “[T]he lack of local channels on satellite systems in many communities prevents satellite from being a substitute for cable.”