S. HRG.

1101067

EXCLUSIVE SPORTS PROGRAMMING: EXAMINING

COMPETITION AND CONSUMER CHOICE

HEARING
BEFORE THE

COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION

MARCH 27, 2007

Printed for the use of the Committee on Commerce, Science, and Transportation

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON

39518 PDF

2010

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 5121800; DC area (202) 5121800
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED TENTH CONGRESS
FIRST SESSION
DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West Virginia TED STEVENS, Alaska, Vice Chairman
JOHN F. KERRY, Massachusetts
JOHN MCCAIN, Arizona
TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota
KAY BAILEY HUTCHISON, Texas
BARBARA BOXER, California
OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida
GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington
JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey
JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas
JIM DEMINT, South Carolina
THOMAS R. CARPER, Delaware
DAVID VITTER, Louisiana
CLAIRE MCCASKILL, Missouri
AMY KLOBUCHAR, Minnesota
JOHN THUNE, South Dakota
MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel
LILA HARPER HELMS, Democratic Deputy Staff Director and Policy Director
MARGARET SPRING, Democratic General Counsel
CHRISTINE D. KURTH, Republican Staff Director and General Counsel
KENNETH R. NAHIGIAN, Republican Deputy Staff Director and Chief Counsel

(II)

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CONTENTS
Page

Hearing held on March 27, 2007 ............................................................................

Statement of Senator Kerry ....................................................................................
Prepared statement ..........................................................................................
Statement of Senator Klobuchar ............................................................................
Statement of Senator Lautenberg ..........................................................................
Statement of Senator McCaskill .............................................................................
Statement of Senator Nelson ..................................................................................
Statement of Senator Stevens ................................................................................

1
1
3
42
35
47
50
4

WITNESSES
Carey, Chase, President and CEO, DIRECTV, Inc. ..............................................
Prepared statement ..........................................................................................
DuPuy, Robert A., President and COO, Major League Baseball .........................
Prepared statement ..........................................................................................
Jacobson, Robert D., President and CEO, iN Demand, L.L.C .............................
Prepared statement ..........................................................................................
Ross, Stephen F., Director and Professor of Law, Institute for Sports Law,
Policy and Research, The Dickinson School of Law, The Pennsylvania State
University .............................................................................................................
Prepared statement ..........................................................................................
Specter, Arlen, U.S. Senator from Pennsylvania ..................................................
Vogel, Carl, President and Vice Chairman, EchoStar Satellite, L.L.C ...............
Prepared statement ..........................................................................................

14
16
5
6
23
24
26
27
40
20
22

APPENDIX
Inouye, Daniel K., U.S. Senator from Hawaii, prepared statement ....................

63

(III)

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EXCLUSIVE SPORTS PROGRAMMING:

EXAMINING COMPETITION
AND CONSUMER CHOICE
TUESDAY, MARCH 27, 2007

U.S. SENATE,
TRANSPORTATION,
Washington, DC.
The Committee met, pursuant to notice, at 10:04 a.m. in room
SR253, Russell Senate Office Building. Hon. John F. Kerry, presiding.
COMMITTEE

ON

COMMERCE, SCIENCE,

AND

OPENING STATEMENT OF HON. JOHN F. KERRY,

U.S. SENATOR FROM MASSACHUSETTS

Senator KERRY. Good morning.

This hearing of the full Commerce Committee will come to order.
Thank you very much for being here this morning, I appreciate it.
I want to welcome all of our witnesses, Im grateful to them for
taking time to come in and discuss an important topiccertainly
important to fans of baseball, and indeed, I think a lot of sports
are interested in what is happening with respect to carriage and
access. So, I think this gives us an opportunity to explore, a little
bit, where we find ourselves today.
Last year baseball fans were able to buy what are called outof-market games through their cable and their satellite providers.
The package of games as it was presented, and is presented, is
called EXTRA INNINGS and it allows fans around the country
to follow their home teams, no matter where they are in the country.
And so, whether a member of the Red Sox Nation, or any other
extended fan base, people living in another city, or even another
part of the country, get access to those games for about what it
costs a family of four to attend one game.
Press reports then indicated that Major League Baseball was
close to announcing an exclusive deal with DIRECTV for carriage
of these gamesand what we want to do today is explore the parameters of this deal a little bit.
Yogi Berra once said, Youve got to be very careful if you dont
know where youre going, because you might not get there. That
sentiment is as timely now as ever. We want to examine where the
parties are going, and whether this deal is, in fact, going to get
them there. Is it in the best interest of consumers? Does it serve
sports fans, and does it serve public interest? These are legitimate
questions.
(1)

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2
Baseball, as we all know, is an integral part of our culture. Commissioner Selig himself has said that baseball is a social institution
with enormous social responsibility, and many of us here agree
with that.
Recognizing that, baseball has also benefited from an array of favorable government policies. The sport enjoys a broad antitrust exemption. That allows them to negotiate carriage deals, and gives
them tremendous market power.
Baseball has also received billions of hard-earned tax dollars to
support stadium construction around the country. Right now, only
a few blocks away from here, the new Washington Nationals stadium is being built.
One economist estimates that between 1989 and 2001, 16 baseball-only stadiums were constructed at a total cost of $4.9 billion;
$3.7 billion of that cost was borne by public revenues, taxpayer
money.
We should support baseball, and I happen to personally believe
in helping to build stadiums, because I think theres an economic
return. I believe baseball, however, ought to also serve the public
interest. Therefore, its fair to expect that they will provide broad
access to their games.
Last year, it cost a family of four almost $180 on averagedepends obviously on parking and some other costs, but on average
about $180 to attend a Major League Baseball game. For a lot of
families, and for people living on fixed incomes, the cost of attending a game is getting tougher and tougher. Nevertheless, there
were a record number of fans attending Major League Baseball
games last year, a reflection of their passion and commitment to
the game, and their willingness and ability also, to make choices.
Were now less than a week away from the baseball season, and
over 250,000 people will lose access to their teams games as they
have experienced them and enjoyed them in the past.
Let me say at the outsetIm concerned in general about some
of the exclusive carriage deals in the sports industry. Obviously, I
can understand from an economic point of view how they are good
for short-term financial needs or interests of the sports leagues,
and they may improve the competitive position of the cable or satellite firms that get those rights. Its not hard to see the business
advantages.
But, we also need to discuss the impact of these business
changes on the baseball fans. A lot of people are concerned, and
have expressed that concern publicly, that when fans lose access to
their favorite team, or as theyre forced to change their TV service
just to see the games, then, that is not necessarily fair. It works
a real inconvenience on a lot of people, and many people think that
is the wrong choice to provide them.
Obviously sports leagues have tremendous market power. What
we need to do is ensure that their market power works in the public interest.
The American people and fans have not been shy about expressing their feelings about this deal. If the truth be told, a lot of baseball fans across the country are disappointed, and some are very
angry.

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3
So, as we come here today, we have approximately 250,000 baseball fans that currently pay a premium to see their team, and they
will lose access to those games unless they switch to DIRECTV.
My sense is that people should not have to cancel their current
service, and switch it in order to be able to gain access to the service theyve had, or one they want to have now.
Weve heard from a lot of fans, also, who dont have the ability
to switch to satellite, even if they want to. So, what we need to do
today is look at the long-term interest in the sport, examine this
deal, hear from the parties, and really just examine what the endproduct of this deal is, and measure it against the public interest
thats on the table.
[The prepared statement of Senator Kerry follows:]
PREPARED STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
I would like to welcome our witnesses. We are conducting this hearing today to
discuss sports programming in generaland baseball in particulara very popular
topic this time of year in Massachusetts and all over the country.
Last year, baseball fans were able to buy what are called out-of-market games
through their cable and satellite providers. The package of games is called EXTRA
INNINGS, and allows fans to follow their home team. So Red Soxs fans living in
Washington or California could still get access to most Red Sox games for about
what it costs a family of four to attend a game.
Press reports indicated that Major League Baseball was close to announcing an
exclusive deal with DIRECTV for carriage of these games. We will evaluate this
deal.
Yogi Berra was once heard to say, Youve got to be very careful if you dont know
where you are goingbecause you might not get there.
That sentiment is as timely now as ever. We want to examine where the parties
are goingand whether this deal will get them there. Is this type of deal in the
best interest of consumers? Does it serve the sports fans? These are legitimate questions.
Baseball is an integral part of American culture. Commissioner Selig himself has
said that baseball is a social institution with enormous social responsibility. I agree
with him.
Recognizing that, baseball has benefited from an array of favorable Government
policies. The sport enjoys a broad antitrust exemption. It allows them to negotiate
carriage deals, and gives them tremendous market power.
They receive billions of hard-earned tax dollars to support stadium construction.
Right now, only a few blocks away from here, the new Washington Nationals stadium is being built. One economist estimates that between 19892001, 16 baseballonly stadiums were constructed at a total cost of $4.9 billion; $3.7 billion of that
cost borne by public revenuestaxpayer money.
We should support baseball, and in return, I believe baseball should serve the
public interest. It is fair to expect baseball to provide broad access to their games.
Last year, it cost a family of four almost $180 to attend a Major League Baseball
game. For too many families and people living on fixed incomes, the cost of attending a game is getting out of reach. Still, a record total of 76 million fans attended
Major League Baseball games last year.
We are now less than a week away from the baseball season and over 250,000
people will lose access to their teams games.
Let me say at the outset, I am concerned about exclusive carriage deals in the
sports industry. These deals may be good for the short-term financial interests of
the sports leagues; they may improve the competitive position of the cable or satellite firms that get the rightsI have no doubt that there are business advantages.
But we need to discuss the impact of these business changes on baseball fans as
well. I am concerned when fans lose access to their favorite team; or, as we will
discover today, they are forced to change their TV service just to see games. That
is wrong. That is a sign that the system is not working.
The sports leagues have tremendous market power. We need to ensure that the
deals that are cut serve the public interest.
Yogi Berra also was heard saying, You can observe a lot just by watching.

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4
Well, the American people are watching, and fans are watching, and they have
not been shy to express their feelings about this deal. Truth be told, baseball fans
all over this country are disappointed and some are outraged.
As we stand here today, approximately 250,000 baseball fans that currently pay
a premium to see their team will lose access to those gamesunless they switch
to DIRECTV.
Baseball is important to America. I believe that baseball fans living outside the
state of their favorite team should continue to have access to Major League games
without having to cancel their current service.
Why should fans have to do that? We have heard from many fans that do not
have the ability to switch to satellite if they want to. That is not fair, and Im not
sure it is in the long term interest of the sport.
With todays hearing, we will get the facts on the record. And I urge the parties
to work together, in good faith, to ensure we have broad carriage of the EXTRA INNINGS package this year.
I welcome our witnesses.

Senator Stevens?
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA

Senator STEVENS. Thank you, Mr. Chairman.

As I understand it, this hearing focuses on a deal between Major
League Baseball and DIRECTV as it relates to out-of-market
games, which allows someone that has moved to watch their favorite team from far away.
Now, Alaska doesnt have a Major League Baseball team, so all
MLB games are out-of-market for us. But Im anxious to hear what
DIRECTV and Major League Baseball will do to ensure that Alaskans and people similarly situated can take advantage of these offerings.
While we only look at baseball today, exclusive contracts exist in
relation to other sports, as well, such as the NFL, and in some instances, cable companies have the exclusive rights to local sports
programs, and satellite providers cannot afford to purchase that
programming. Of course, Alaskans are hockey nuts, so I dont think
were involved too much in this hearing today, but I do look forward to hearing from the panel, to learn whether they think there
should be a role for Congress to play in the sports programming
marketplace.
Im sorry to tell you that weve got two competing hearings, one
is where Senator Inouye and I will have to join in after the statements, but I do hope to hear the statements as theyre presented
by the witnesses. Thank you.
Senator KERRY. Senator Stevens, thank you very, very much.
And, I know that Senator Specter is going to be here at some point.
He has a competing hearing, and even though he is not a member
of the Committee, he did express a desire to come by, and he will
do that, as well as a number of other Senators.
Im delighted to welcome Rob Jacobson, the President and CEO
of iN DEMAND Networks; Stephen F. Ross, Professor of Law,
Dickinson School of Law, at Pennsylvania State University; Mr.
Carl Vogel, Chairman and Vice President, EchoStar Satellite Systems; Robert DuPuy, President and Chief Operating Officer of
Major League Baseball; and Mr. Chase Carey, President and Chief
Executive Officer of DIRECTV Group. Thank you all for being here,
we appreciate it, well start with you, Mr. DuPuy. Thank you.

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5
STATEMENT OF ROBERT A. DUPUY, PRESIDENT AND COO,
MAJOR LEAGUE BASEBALL

Mr. DUPUY. Thank you, Mr. Chairman, Mr. Vice Chairman. I appreciate the opportunity to appear before you today to discuss baseballs recent agreement with DIRECTV for the MLB Channel, and
MLB EXTRA INNINGS package, and outline what we believe are
the deals benefits for the significant majority of our fans, and to
use your words, in the best interest of our consumers.
We are particularly pleased with something you didnt mention
in your opening statement, Mr. Chairmanthat so many baseball
fans, will have access to our allbaseball channel when it launches.
And were grateful to DIRECTV for helping us make that happen.
Its important to emphasize at the outset, that our desire is to
have as much distribution of our games as possible. Our contract
with DIRECTV permits iN Demand, and the DISH Network, to distribute the MLB Channel and the EXTRA INNINGS package, also.
We hope that they agree to match DIRECTVs commitment to our
fans.
Additionally, we would like to be clear that both iN Demand and
the DISH Network were given a full opportunity to participate in
negotiations over 9 months for the rights that we were granting.
Bluntly put, this is not a matter of fans being unable to view
Major League Baseballs out-of-market games. It is a matter of
some fans not being able to watch those games on a particular delivery system.
Out-of-market games are still available. Even if iN Demand and
DISH do not choose to participate, they are available on multiple
platforms. Baseball provides more telecast to its fans than any
other sport. Including local broadcasts, there are about 4,500 television broadcasts per year. After a lengthy negotiation over the renewal of a single complimentary package of games, those games
were awarded to DIRECTV. But, even now, the other bidders have
been given the chance to match negotiated terms.
If iN Demand and DISH choose not to step up to the plate, fans
will still have several options. They can switch to DIRECTV, they
can subscribe to MLB.com and watch the games on the Internet,
and they can watch the roughly 400 games that every fan, in every
major league market has available, without the out-of-market package. That includes virtually every one of the local market games,
all of the games that we have on ESPN, Turner and FOX, and the
AllStar game and complete post-season. That is an average of two
games per day during our season.
Fans can also, of course, listen to local games on the radio, and
all of our more than 2,400 regular-season games nationwide, on
XM Satellite Radio.
Business arrangements such as our agreement with DIRECTV
are not unusual. During the negotiation period, every carrier had
an ability to bid, and each of them put in a bid to carry the games
exclusively. To watch the Sopranos, you must subscribe to HBO,
not Showtime or Cinemax. To watch the NFL out-of-market games,
you must subscribe to DIRECTV. To watch the NCAA and
NASCAR specialized packages, you must similarly subscribe to
DIRECTV.

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6
An even better example involves, ironically, the behavior of two
of the members of the iN DEMAND consortium. To watch Phillies
games, in Philadelphianot in Utah, but in Philadelphiayou
must subscribe to cable. Comcast, the dominant cable provider in
the Philadelphia area, does not make the games available to satellite distributors.
To watch Padres games in San Diego, you must subscribe to
cable, because Cox, another member of the iN DEMAND consortium, does not make the games available to satellite. In Philadelphia alone, more than 400,000 satellite subscribers are denied the
ability to watch their hometown Phillies, or Flyers, or 76ers because of Comcast. That is more than twice the number of subscribers the entire iN DEMAND syndicate had nationally for the
EXTRA INNINGS package last year.
Our agreement with DIRECTV has two principal components.
First, DIRECTV will launch the MLB Channel as part of the Total
Choice Basic Service with over 15 million subscribers throughout
the Nation when the network becomes available. DIRECTV will
have only non-exclusive carriage rights for the MLB Channel.
Second, DIRECTV will offer its subscribers the MLB EXTRA INNINGS package, as it has done during each of the last 11 years.
We are excited by the launch of the MLB Channel. We consider it
a key to reaching the next generation of fans. Achieving carriage
of new programming networks is a difficult proposition in todays
marketplace, and DIRECTVs commitment to distribute the channel to at least 80 percent of all of its residential subscribers provides an exceptional start for the channel.
It is also to our many fans great benefit that DIRECTV will be
carrying the EXTRA INNINGS package. DIRECTV has a proven
track record of developing features that significantly enhance the
viewing of the telecasts they carry, such as the NFL and NASCAR
broadcasts.
It is also worth repeating that all Major League out-of-market
games will still be available online through MLB.com, which beginning this season will offer an upgraded picture quality.
In summary, Mr. Chairman, baseball believes strongly in our
business judgment, and that the agreement we have reached with
DIRECTV will provide real benefits to the greatest number of baseball fans.
Thank you, again, for the opportunity to appear today. I have attached to my written testimony the report on this subject that we
submitted to the FCC on March 21, and I would ask that a copy
of my full statement and that report be made part of the record of
this hearing.
[The prepared statement of Mr. DuPuy follows:]
PREPARED STATEMENT OF ROBERT A. DUPUY, PRESIDENT
MAJOR LEAGUE BASEBALL

AND

COO,

Good morning, Mr. Chairman. My name is Robert DuPuy, and I am the President
and Chief Operating Officer of Major League Baseball. I appreciate the opportunity
to appear before you today to discuss Baseballs recent agreement with DIRECTV
for The MLB Channel and the MLB EXTRA INNINGS package and to outline what
we believe are the deals benefits for our fans. We are particularly pleased that so
many baseball fans will have access to our all-baseball, all-the-time channel when

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7
it launches in 2 years, and we are grateful to DIRECTV for helping us make this
happen.
It is important to emphasize at the outset that our deal with DIRECTV permits
iN Demand, the consortium created by the cable industry, and the DISH Network
to distribute The MLB Channel and the EXTRA INNINGS package also. We hope
that they agree to match DIRECTVs commitment to our fans. Additionally, we
would like to stress that both iN Demand and the DISH Network were given a full
opportunity to participate in negotiations for the rights that we were granting.
I want to make one point abundantly clear. This is not a matter of fans being
unable to view Major League Baseballs out-of-market games. It is a matter of not
being able to watch those games on a particular system. Out-of-market games are
still available, even if iN Demand and DISH do not choose to participate, and are
available on multiple platforms. Baseball provides more telecasts to its fans than
any other sport. After a lengthy negotiation over the renewal of a single package
of games, those games were awarded to DIRECTV, but even then, the other bidders
have been given a chance to match the negotiated terms. There is nothing sinister,
illegal, wrongful or frankly unusual about that form of business negotiation or result. In fact, as I will explain later, we believe the result is a benefit to our fans.
If iN Demand and DISH choose not to step up to the plate as DIRECTV has done,
fans will still have several options. They can switch to DIRECTV, they can subscribe
to MLB.TV and watch the games on the Internet, and they can watch the roughly
400 games that every fan in every Major League market has available without the
out-of-market package. That includes virtually every one of the local market games
(Red Sox fans throughout the Red Sox home territory are completely unaffected by
this deal), all of the games on ESPN, Turner and Fox, and the All-Star Game and
complete post-season. Given that our season and post-season are about 200 days,
that is about two games per day. Of course, fans can also listen to local games on
the radio and all of our more than 2,400 regular season games nationwide on XM
Satellite Radio.
As I mentioned, business arrangements such as our agreement with DIRECTV
are not unusual. During the negotiation period, every carrier had an ability to bid,
and each of them put in a bid to carry the EXTRA INNINGS package exclusively.
To watch the Sopranos, you must subscribe to HBO, not Showtime or Cinemax. To
watch the NFL out-of-market games, you must subscribe to DIRECTV. To watch the
NCAA and NASCAR specialized packages, you must similarly subscribe to
DIRECTV. An even better example involves ironically the behavior of two of the
members of the loudest complainant here, the iN Demand consortium. To watch
Phillies games in Philadelphia (not in Utah, in Philadelphia) you must subscribe to
cable. Comcast, the majority owner of iN Demand and the dominant cable provider
in the Philadelphia area, does not make the games available to satellite distributors.
Similarly, to watch Padres games in San Diego, you must subscribe to cable because
Cox, another member of the iN Demand consortium and the dominant cable provider in the San Diego area, does not make the games available to satellite. In
Philadelphia alone, more than 400,000 satellite subscribers are denied the ability
to watch their home town Phillies (or Flyers or 76ers) because of Comcast. That is
more than twice the number of subscribers the entire iN Demand syndicate had nationally for the EXTRA INNINGS package last year. And yet, when after a 5-month
negotiation, iN Demand was the unsuccessful bidder, and even after it was given
the ability to match the DIRECTV terms and conditions, rather than do so, iN Demand instead complained to Congress for a better business deal than it could negotiate.
As we explained in great detail in our report to the FCC, our agreement with
DIRECTV, which covers the years 2007 through 2013, has two principal components. First, DIRECTV will launch The MLB Channel as part of its Total Choice
basic servicewith over 15 million subscribers throughout the Nationwhen the
network becomes available in 2009. The MLB Channel will be the first and only network dedicated to providing baseball programming 24 hours a day, 7 days a week
on a year-round basis. The MLB Channel will likely include regular-season MLB
games, as well as a mix of Spring Training games, Minor League games, games of
other professional or amateur leagues, highlight shows and other programming that
will be designed to appeal to MLBs broad fan base and that would not otherwise
be available to them. DIRECTV will have only non-exclusive carriage rights for The
MLB Channel, in which it will own a minority stake, and we will aggressively pursue deals with other distributors.
Second, DIRECTV will offer its subscribers the MLB EXTRA INNINGS package,
as it has done during each of the last eleven years. This package supplements national and local telecast rights. Again, our agreement with DIRECTV also allows
Baseball to license the EXTRA INNINGS package to those entities that carried it

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8
last year, iN Demand and DISH, provided they agree to rates, rights fees and carriage commitments consistent with those to which DIRECTV has agreed. This includes a commitment to distribute The MLB Channel to at least 80 percent of their
total residential digital subscribers, which in the case of iN Demand translates to
approximately 40 percent of all the subscribers of its owners, a lower threshold than
required for DIRECTV, which must distribute it to 80 percent of all of its subscribers. Retaining the ability to license the EXTRA INNINGS package to the DISH
Network and the cable universe through iN Demand was something we did because
of our desire to provide the greatest amount of baseball to the greatest number of
fans.
It bears repeating that nothing in the DIRECTV agreement will affect any of the
national telecast rights described above or any clubs local telecasts rights. Not a
single fan needs EXTRA INNINGS to watch his or her local teams games. This situation stands in direct contrast to the situation in Philadelphia described earlier,
where the regional sports network Comcast SportsNet distributes its local games
only via cable, in an area in which Comcast Corporation, owner of Comcast
SportsNet, is the dominant cable provider, and the similar situation in San Diego
with Cox Channel 4 and its owner Cox Communications, again the dominant cable
provider and again involving home team games.
We are excited by the launch of The MLB Channel. Achieving carriage of new programming networks is a difficult proposition in todays telecommunications marketplace, and DIRECTVs commitment to distribute The MLB Channel to at least 80
percent of all its residential subscribers provides an exceptional start for the service.
Contrary to statements that iN Demand has made, it has never offered to match
this commitment. We hope and expect distribution will increase among other programming distributors. In the meantime, however, at launch 15 million DIRECTV
subscribers will receive an attractive selection of games and other Baseball programming. During the course of our negotiations with the other distributors, comments have been madesome might call them threatsto the effect that if we do
not acquiesce to the demands of the other distributors and make EXTRA INNINGS
available on their terms, then they will never agree to carry The MLB Channel.
Notwithstanding these comments, we are confident that The MLB Channel will be
of significant interest to a wide audience, reflecting the broad appeal of our game,
even broader than some channels that are currently widely distributed by the other
distributors.
It is also to our many fans great benefit that DIRECTV will be carrying the
EXTRA INNINGS package. DIRECTV has a proven track record of developing features that significantly enhance the viewing of the telecasts they carry. We were
particularly impressed by the types of innovations DIRECTV brought to the NFLs
out-of-market package Sunday Ticket and NASCARs Hot Pass. DIRECTVs
plans for the EXTRA INNINGS package include a mosaic channel (with up to 8
game telecasts shown simultaneously on a single screen); a Strike Zone Channel
that provides viewers live cut-ins of games in progress at key points; high definition
telecasts; and other innovations to be developed.
We are aware that a limited number of homes in the United States cannot receive
satellite delivered programming because of line-of-sight difficulties. We wish that
were not the case, but the number of such households is a small fraction compared
to the number of households that will receive The MLB Channel beginning in 2009.
It has always been Baseballs objective to achieve wide distribution for its telecasts
and to serve the greatest number of fans. We believe the launch of The MLB Channel is consistent with that objective and with Baseballs longstanding telecast practices that have generated such an overwhelming number of national and local viewers. Again, we aim to serve the greatest number of our fans, not a small number
of distributors.
It is also worth emphasizing that all of the Major League Baseball game telecasts
on EXTRA INNINGS will be available online through MLB.TV, which, beginning
this season, will offer an upgraded picture quality. With future technological developments, we expect the quality of the online viewing experience of our fans to continue to improve. And with the significant growth of broadband penetration (which
is now greater than that of digital cable), the total number of subscribers to our outof-market packages (MLB.TV and EXTRA INNINGS combined) is likely to reach
new highs in the coming years.
In summary, Mr. Chairman, Baseball believes strongly that the agreement we
have reached with DIRECTV will provide the most benefits to the greatest number
of Baseball fans. Under this deal, we have been guided by this fan-friendly approach
because we view that as one of our primary responsibilities and because we believe
doing so simply makes good business sense. Under this deal, DIRECTV, a longstanding MLB partner that prides itself on customer service, has made a very sig-

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nificant and, in our view, appropriate commitment to its customers and to our fans.
As part of this deal, we negotiated to secure for iN Demand and DISH this window
of opportunity to continue as distributors of the EXTRA INNINGS package. We continue to hope that they will similarly adopt a customer- and fan-friendly approach
and capitalize on their right to opt-in to this deal on the fair, reasonable and market-based terms offered. Thank you, again, for the opportunity to appear today. I
have attached to my written testimony the report on this subject that we submitted
to the FCC on March 21.

OFFICE

OF THE

COMMISSIONERMAJOR LEAGUE BASEBALL

March 21, 2007

MONICA SHAH DESAI,

Chief,
Media Bureau,
Federal Communications Commission,
Washington, DC.
Dear Ms. Desai:
We appreciate the opportunity to provide you with information concerning the recently-announced agreement between Major League Baseball (MLB) and
DIRECTV, as requested in your letter of February 20, 2007.
Our agreement sets forth the terms and conditions under which DIRECTV has
committed to carry The MLB Channel and the MLB EXTRA INNINGS package
(EXTRA INNINGS). In light of these commitments and the opportunity for
EchoStars DISH Network (EchoStar) and iN DEMAND (a consortium comprised
of Time Warner, Comcast and Cox) to match these commitments and opt-in, we
firmly believe that our agreement with DIRECTV best serves not only our legitimate business interests but also the interests of our fans. We remain hopeful that
EchoStar and iN DEMAND will capitalize on this opportunity and step up for our
fans and their customers. However, even if they refuse to match DIRECTVs commitment, our deal with DIRECTV will still ensure, over the long run, that more of
our fans have access to more of our programming and in a more compelling format
than ever before. As such, our agreement with DIRECTV is fully consistent with
the policies adopted both by Congress and the Commission.
I. DIRECTVs Commitment to MLB and its Fans
The MLB Channel. DIRECTV will launch The MLB Channel, as part of its
Total Choice basic service package, when the network becomes available in the
year 2009. Total Choice currently reaches over 15 million households across the
United States. DIRECTV has committed to offering The MLB Channel, during the
years 200913, in programming packages that reach more than 80 percent of its
total residential subscribers. Because DIRECTV will have only non-exclusive rights
to carry The MLB Channel, we will aggressively seek to expand distribution of the
network through additional multi-channel video programming distributors
(MVPDs).
The MLB Channel will be the first and only network dedicated to providing baseball programming 24 hours-a-day, 7 days-a-week on a year-round basis; it will serve
as the TV home for all baseball fans. While the slate of programs for The MLB
Channel is still under discussion, it will likely include regular-season MLB games,
as well as a mix of Spring Training games, Minor League games, games of other
professional or amateur leagues, highlight shows and other programming that will
be designed to appeal to MLBs broad fan base and that would not otherwise be
available to them. The MLB Channel is intended to provide the in-depth televised
coverage of MLB, and baseball generally, that fans cannot receive anywhere else,
as well as to supplement our inventory of game telecasts. With The MLB Channel,
we will no longer be solely dependent upon other networks to ensure that our fans
receive the substantial number of MLB telecasts that they currently receive.
DIRECTV, as a minority partner in The MLB Channel, will work with us to develop
a unique and entertaining service that appeals to our fan base and helps promote
interest in baseball at all levels.
EXTRA INNINGS. As it has done during each of the last eleven years, DIRECTV
will offer its subscribers the EXTRA INNINGS package for a separate subscription
fee during the years 200713. That package allows subscribers to view certain telecasts of out-of-market MLB regular season games, i.e., games involving teams
other than the subscribers home team. For example, the EXTRA INNINGS package
made available in New York City would not include telecasts of games involving the

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New York Yankees and New York Mets, but would include telecasts of games involving other MLB clubs.
We launched the EXTRA INNINGS package in 1996 to supplement and to complement the extensive array of game telecasts that we make available to the public
through a variety of sources, and thereby increase the overall output of our game
telecasts. In 2007, apart from EXTRA INNINGS, fans in our clubs markets will
have access to an average of more than 400 telecasts of MLB games over a combination of programming servicesthe FOX broadcast network, the national cable networks ESPN and TBS, superstation WGN, and multiple regional sports networks
and over-the-air broadcast television stations. We are proud of the fact that no professional sports league offers its fans more game telecasts than Major League Baseball. Nothing in our agreement with DIRECTV will affect the continued availability
of these telecasts.
Nor will anything in the agreement affect the availability of home team MLB telecasts, which are generally the telecasts that are most important to our fans. Indeed,
home team games are not available on EXTRA INNINGS. All fans will continue to
have access to game telecasts of their home club(s) in their home market without
the need to subscribe to EXTRA INNINGS. EXTRA INNINGS simply allows our
most avid fans the opportunity to purchase, for a separate fee, an additional package of games over and above the significant inventory they receive as part of their
basic cable or satellite service.
II. Licensing of Other Incumbent Carriers
Although we are prepared to accord DIRECTV exclusive rights to EXTRA INNINGS, our objective has always been to provide as much MLB programming to as
many baseball fans as possible. Thus, our agreement with DIRECTV allows us to
license EXTRA INNINGS to the other incumbents that carried the package last season, i.e., EchoStar and iN DEMANDas long as they agree before the 2007 MLB
season begins to rates and terms consistent and proportionate with those to which
DIRECTV has agreed.
Under our agreement with DIRECTV, EchoStar and iN DEMAND will need to
commit to a fair allocation of the total rights fees for EXTRA INNINGS as set forth
in that agreement, based on the number of digital households that they and
DIRECTV serve. Although more subscribers could receive EXTRA INNINGS if they
opt-in, the total rights fees paid to MLB for that package would remain the same.
And the per sub license fee for The MLB Channel also would be the same for each
of the incumbents. To be sure, there would be some differences among the incumbents: (1) DIRECTV had to step up and make the initial commitment and thus
it effectively set the market; (2) having made the initial commitment and certain
concessions in the course of negotiations, DIRECTV alone will receive a minority
stake in The MLB Channel; (3) EchoStar and iN DEMAND receive the benefit of
a right to match; and (4) while DIRECTV and EchoStar must include The MLB
Channel in programming packages that reach more than 80 percent of their total
residential subscribers, IN DEMANDs owners and affiliates must include the network on programming packages that reach more than 80 percent of their digital residential subscribers only (which currently translates to approximately 40 percent of
their total residential subscribers).
Our agreement with DIRECTV was negotiated over the course of months, and, in
our view, resulted in fair market financial and carriage commitments to MLB and
our fans. We would have liked to have commanded higher rights fees for EXTRA
INNINGS, but the cost could have included reduced distribution for The MLB Channel. We would have liked a 100 percent penetration commitment for the channel,
but we concluded that a penetration commitment in excess of 80 percent was not
achievable in this market at this time. We would have liked to lock-up all of these
significant commitments from DIRECTV, while at the same time retaining the ability to license EXTRA INNINGS to any other distributor on any terms and at any
time. That was not possible, either. So we made what we deemed to be acceptable
concessions in order to secure the right to allow EchoStar and iN DEMAND the
ability to opt-in during this limited window. While in its final, heavily negotiated
form, our deal with DIRECTV may not be perfect from our perspective, it was by
far the most fan-friendly arrangement available to us.
EchoStar and iN DEMAND may well be reluctant to distribute The MLB Channel
at the required 80 percent distribution. We obviously negotiated hard to obtain that
commitment from DIRECTV and believe it represents the penetration that the market will bear. DIRECTV has been a very successful distributor, and we think its
fair to assume that they regularly exercise reasonable business judgment, and did
so in making that commitment in our deal. Additionally, in our view, The MLB
Channel will provide programming of greater interest to more of the subscribers

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served by EchoStar and iN Demand than many of the other networks that are currently distributed to 80 percent of their residential digital subscribers. So, while we
understand that distributors often prefer to restrict the distribution of independent
third-party networks, the 80 percent penetration requirement should not be a barrier to entry for the other incumbents (and, especially, in the case of the cable distributors who would only be required to deliver 80 percent of their digital subscribers).
While EchoStar and iN DEMAND may likewise be reluctant to pay their fair
share of the EXTRA INNINGS fees agreed to by DIRECTV, those fees were heavily
negotiated and we believe are reflective of market value. In fact, under other proposals, we likely could have matched or even exceeded the fees that DIRECTV is
paying for EXTRA INNINGS. And, while the other incumbents may object to being
asked to pay the same per subscriber served fee as DIRECTV, we believe that this
basis of apportionment is entirely fair and reasonable.
The bottom line is that MLB negotiated hard for this opt-in window, and we believe it affords the other incumbent distributors an opportunity to better serve our
fans and their customers on a fair and reasonable basis.
III. The Benefits of the DIRECTV Agreement
As noted above, our agreement with DIRECTV was the product of free and open
marketplace negotiations. We did not negotiate exclusively with DIRECTV. Rather,
we approached each of the incumbents that carried EXTRA INNINGS during the
2006 season, i.e., iN DEMAND, EchoStar and DIRECTV. All of our incumbent distributors made bids based upon both exclusive and non-exclusive arrangements, and
we fully explored the merits of all of these proposals. While we have finalized an
agreement with DIRECTV, the door is still open for iN DEMAND and EchoStar. If
iN DEMAND and EchoStar match DIRECTVs commitment, all fans who received
EXTRA INNINGS last season will continue to have access to EXTRA INNINGS
through their current providers. However, if iN DEMAND and EchoStar choose not
to do so, DIRECTV, which had the majority of EXTRA INNINGS subscribers last
season, would receive exclusive rights to EXTRA INNINGS for the years 200713.
This exclusivity would not be reflective of MLBs preference. We would strongly prefer that all of the distributors adopt DIRECTVs fan-friendly approach. Throughout
this process, we have been guided by our desire and responsibility to best serve our
fans. Our deal with DIRECTV presents us with the top two alternatives for our
fans, with the non-exclusive deal resulting from opt-ins as our clear preference.
To the extent that, as a result of the reluctance of EchoStar and iN DEMAND to
make commitments commensurate with DIRECTVs, an exclusive arrangement with
DIRECTV moves up a position to represent the best alternative for our fans, we feel
duty bound to capitalize on it.
Our goal from the outset has been to secure distribution of the most MLB programming to the greatest number of our fans. For several reasons, the commitment
that DIRECTV has agreed to make is far superior to any other offer we have received to date in terms of allowing us to achieve that goal.
First, MLB has a very broad fan base. Last season, attendance at our games (over
76 million tickets sold) reached an all-time high, the third season in a row that we
set a record. Our website, MLB.com, attracted 2.4 billion visitors in 2006. And average household audiences for nationally-televised regular season MLB games in 2006
(on FOX, ESPN, ESPN2, TBS and WGN) were the largest since 2002, while our
post-season telecasts reached approximately 150 million viewers. Moreover, fans
have year-round interest in the sport of baseball. MLB games are played from the
beginning of March (with the first game of Spring Training) to the end of October
(with the final game of the World Series), while baseball games from other leagues
inside and outside the United States fill most of the intervening months. TV, radio,
print and other media feature MLB news coverage throughout the year.
We firmly believe that our substantial fan base deserves to have a 24/7/365 channel devoted to baseballa channel that also provides our fans and us with a viable
alternative as an outlet for game telecasts and reduces the existing dependence
upon other networks to satisfy our fans desire to receive those telecasts. And, as
noted above, we believe the level of interest in this channel will exceed that of many
channels currently carried in digital basic packagesa number of which, of course,
are vertically integrated with the cable operators that carry them. We want partners, such as DIRECTV, that are willing to make The MLB Channel available to
the broadest possible number of households without imposing additional charges
upon our fans. In this regard, we are perhaps no different than any other programmer. DIRECTVs commitment to offer The MLB Channel in programming
packages that reach not only more than 80 percent of their subscribers but also
more than 15 million households, while at the same time allowing for the opt-in

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opportunity for our other incumbent EXTRA INNINGS distributors, far exceeded
the commitments presented by the other incumbents during our prior negotiations.
As the Commission is aware, independent programmers (such as MLB) face substantial difficulties in bringing new programming services (such as The MLB Channel) to the market. See generally Notice of Inquiry in MB Doc. No. 06189, 21 FCC
Rcd. 1229 at 16 (2006) (seeking to ascertain the nature and extent of such difficulties). Absent DIRECTVs commitment to carry The MLB Channel on its Total
Choice platform, those difficulties would have posed significant obstacles to the successful development of a new year-round 24/7 channel devoted entirely to the sport
of baseball. DIRECTVs willingness to become the initial distributor of The MLB
Channel and to provide the network to the critical mass necessary for its deployment (regardless of whether their EXTRA INNINGS rights were exclusive or nonexclusive) made DIRECTVs offer the clear winnerand it is a key reason why our
agreement with DIRECTV will best serve the long-term interests of MLB and its
fans.
Second, DIRECTV has done a superior job in successfully promoting subscriptions
to the EXTRA INNINGS package. In 2006, for example, DIRECTV accounted for
more than one-half of the EXTRA INNINGS subscribers baseeven though it had
less than one-quarter of all MVPD subscribers nationwide. We believe that
DIRECTV has the ability and the desire to invigorate the EXTRA INNINGS package and to ensure that more fans than ever choose to subscribe to that package.
Indeed, DIRECTV has a proven track record of developing innovative features that
significantly enhance the viewing experiences of premium sports programming. We
have been particularly impressed by the type of value added services that DIRECTV
has brought to the NFLs out-of-market package Sunday Ticket and NASCARs
Hot Passand by DIRECTVs plans to expand the EXTRA INNINGS options to
include: (a) a game mosaic channel (with up to eight game telecasts shown simultaneously on a single screen); (b) a Strike Zone Channel that takes viewers to live
cut-ins of MLB games in progress at key points; (c) HD telecasts; and (d) other innovations that complement the sport of baseball, entertain viewers and provide fans
with significant entertainment value.
Finally, if iN DEMAND and EchoStar do not match DIRECTVs commitment for
the carriage of The MLB Channel and EXTRA INNINGS, we hope that those of our
fans who are not currently DIRECTV subscribers consider becoming DIRECTV subscribers. DIRECTV has sought to make it as easy as possible for fans to switch to
its service. As it has advised the Commission, consumers can switch to DIRECTV
with no start-up costs, no equipment to buy, and no installation charges. Letter
dated March 2, 2007 at 5 from Chase Carey, President and CEO of DIRECTV
(DIRECTV FCC Letter). This would not be the first time that DIRECTV has been
the exclusive provider of EXTRA INNINGS. During the 2000 season and the first
half of the 2001 season, DIRECTV was the only MVPD to offer EXTRA INNINGS.
DirecTV also has had, and continues to have, exclusive carriage rights to other premium sports packages such as the National Football Leagues out-of-market package
Sunday Ticket, NCAAs out-of-market March Madness package and NASCARs
Hot Pass.
We recognize that there are some fans who are unable to receive DIRECTV for
technical reasons. DIRECTV has estimated the number of such fans who subscribed
to EXTRA INNINGS last year to be approximately 5,000. DIRECTV FCC Letter at
5. We also recognize that some number of additional fans may prefer not to change
their MVPD service to receive EXTRA INNINGS. We would ask all of these fans
to consider subscribing to a comparable out-of-market package that is available online through MLB.TVan option that was not available when DIRECTV last carried EXTRA INNINGS on an exclusive basis. Beginning with the 2007 season,
MLB.TV will offer an upgraded picture quality. With future technological developments, we expect the quality of the online viewing experience of our fans to continue
to improve. And with the significant growth of broadband penetration (which is now
greater than that of digital cable), the total number of subscribers to our out-of-market packages (MLB.TV and EXTRA INNINGS combined) is likely to reach new
highs in the coming years.
If EchoStar and iN DEMAND choose not to match DIRECTVs commitment, we
sincerely regret any disruption or inconvenience that would be caused to this limited
number of fans by having DIRECTV become the exclusive provider of EXTRA INNINGS. But we cannot put the interests of what we believe are a relatively small
minority of fans over what we believe are the bests interests of the entire fan base
as a whole. While all of our fans are important to us, in our judgment, the benefits
of ensuring the successful launch of The MLB Channel as part of a basic service
package with more than 15 million subscribers outweigh the unfortunate inconvenience that certain fans will face in obtaining EXTRA INNINGS from a new provider.

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DIRECTV has been an outstanding partner to MLB. Like MLB, they believe that
being committed to customer-service is just good business, and, regardless of how
many EXTRA INNINGS distributors we have going forward, we are quite comfortable that our fans will continue to be well-served.
IV. Congressional and Commission Policies
Should DIRECTV receive exclusive carriage rights for EXTRA INNINGS, such
rights would be fully consistent with Congressional and Commission policies. Exclusive rights also would be typical of arrangements that are routine in the television
programming industry.
In the Cable Act of 1992, Congress specifically considered the issue of when the
Commission should prohibit exclusive programming contracts between programming
vendors and MVPDs. Congress concluded that the Commission should do so only
when the programming vendor was vertically integrated with an MVPD; and the
program access rules were upheld as constitutional on that basis. See Section
628(c)(2)(D) of the Communications Act, 47 U.S.C. 548(c)(2)(D); Time Warner Entertainment Co. v. FCC, 93 F.3d 957, 978 (D.C. Cir. 1996). Even then, Congress recognized that the Commission could make exceptions and permit exclusive contracts
after balancing a series of statutorily-prescribed criteria. See Section 628(c)(4) of the
Communications Act, 47 U.S.C. 548(c)(4), which includes the need for exclusivity
to ensure the development of new programming (such as The MLB Channel).
MLB has no ownership or other financial interest in DIRECTV or any other
MVPD, and neither DIRECTV nor any other MVPD has any ownership or other financial interest in EXTRA INNINGS. MLB is precisely the type of independent programmer that Congress determined, in the 1992 Cable Act, should be allowed to
enter into exclusive arrangements with MVPDs such as DIRECTV. Over the years,
the Commission has repeatedly resisted efforts to expand (or recommend expanding)
the prohibition in Section 628(c)(2)(D) to encompass exclusive agreements involving
independent programmers. See, e.g., Report and Order in CS Doc. No. 0I290, 17
FCC Rcd. 12124 at 74 and n. 243 (2002); Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, 15 FCC Rcd. 9978, I066
(2000). As the Commission has correctly noted, Such an expansion would directly
contradict Congress intent in limiting the program access provisions to a specific
group of market participants. 17 FCC Rcd. at 74.
In supporting that conclusion as well as urging the Commission to sunset the Section 628(c)(2)(D) prohibition on exclusive contracts, the cable industry itself has argued that program exclusivity (such as that accorded for the EXTRA INNINGS
package) has numerous pro-competitive and pro-consumer benefits. Indeed, the
record in the sunset proceeding (CS Docket No. 01290) is replete with comments
from the cable industry demonstrating the benefits of exclusive programming contracts. See also First Report and Order in MM Doc, No. 92265, 8 FCC Rcd. 3359
at 23 (1993) (As a general matter, the public interest in exclusivity in the sale
of entertainment programming is widely recognized.); EchoStar Communications
Corp. v. Fox/Liberty Networks LLC, 14 FCC Rcd. 10480 at 14 (Cable Services Bureau 1999) (public policy requires minimal regulatory interference with private contracts entered into by consenting parties). There should be no question that having
exclusive rights to the distinctive EXTRA INNINGS package would make DIRECTV
a more formidable competitor to a cable industry that currently dominates the
MVPD marketand thus help achieve the competitive balance that Congress envisioned when it adopted the 1992 Cable Act. Certainly EchoStar and iN DEMAND
recognized as much since they both submitted bids that contemplated exclusive
rights for EXTRA INNINGS.
It also should be noted that the decision to accord exclusive rights for sports programming networks is not without precedent in the cable industry. Cable operators
themselves have been the beneficiary of exclusive contracts for sports programming,
and Congress has not taken any action to prohibit such contracts. For example,
Comcast has entered into exclusive cable-only deals for its terrestrially-delivered
Comcast SportsNet in Philadelphia, which carries numerous games of the Philadelphia Phillies, Flyers and Sixers. See EchoStar Communications Corp. v, FCC, 292
F.3d 749 (D.C. Cir. 2002), affg 15 FCC Rcd. 22802 (2000). Likewise, Cox Communications offers its terrestrially-delivered Cox Channel 4 San Diego, with approximately 140 telecasts of San Diego Padres games, on an exclusive basis to cable. See
also RCN Telecom Services of New York, Inc. v. Cablevision Systems Corp., 14 FCC
Rcd. 17093 (Cable Services Bureau 1999) (upholding refusal to license regional
sports networks to certain MVPDs). None of the sports telecasts on Comcast
SportsNet-Philadelphia (which includes a significant number of home team games)
is thus available to more than 400,000 DBS subscribers in the Philadelphia area;
and none of the sports telecasts on Cox Channel 4 San Diego (which also includes

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14
a number of home team games) is available to any DBS subscribers in the San
Diego area. The number of DBS subscribers currently affected by these cable-only
deals is far greater than the number of subscribers affected by according DIRECTV
exclusivity for EXTRA INNINGS.
*
*
*
*
*
In conclusion, we recognize and appreciate the interest of the Commission and
Members of Congress in our agreement with DIRECTV. For the reasons stated
above, we strongly believe that the agreement will benefit not only Baseball and
DIRECTV but also the fans on which we dependand that it would be consistent
with the pro-consumer and pro-competitive policies that the Commission and Congress have adopted. Please let us know if there is any additional information that
you believe would be necessary or helpful in preparing your report to the Members
of Congress that have expressed an interest in this matter. We are, of course, prepared to meet with you and your staff at your convenience to discuss any questions
you may have.
Sincerely,
ROBERT A. DUPUY,
President and Chief Operating Officer.

Senator KERRY. Without objection, it will be. Thank you very

much, Mr. DuPuy.
Senator KERRY. Mr. Carey?
STATEMENT OF CHASE CAREY, PRESIDENT AND CEO,
DIRECTV GROUP, INC.

Mr. CAREY. Thank you. Thank you, Mr. Chairman and Mr. Vice
Chairman. And thank you for inviting me to testify today.
My name is Chase Carey, Im the President and CEO of
DIRECTV. I appreciate the opportunity to discuss baseballs recently announced agreement with Major League Baseball.
Id like to make five points in my opening. First, DIRECTV
reached its agreement with Major League Baseball through a fair
and open process. Second, we value this programming so highly because we differentiate ourselves with better technology and content
leadership, particularly in sports. Third, the Baseball Channel will
be a great channel with year-round, 24-hour baseball coverage, a
truly new service for our fans. Fourth, DIRECTV has pursued all
of our initiatives with the customer in mind, first and foremost.
And fifth, our agreements comport with the policies Congress established to create a competitive marketplace. Let me elaborate.
DIRECTV reached its agreement with Major League Baseball
through a fair and open process. All of our cable and satellite competitors engaged with Major League Baseball on this package.
DIRECTV had no advantage in this negotiation. We simply had
greater interest than our competitors. Yes, even today, after all of
this time, our competitors can have the EXTRA INNINGS package
if they match DIRECTVs offer. To date, they have not done so.
We value this programming so highly, because we differentiate
ourselves from our competitors through technological innovation
and content leadership, particularly in sports. Cable differentiates
itself through the Triple Play bundle. EchoStar does through initiatives such as exclusive international programming. Simply put, this
is competition at work.
DIRECTVs strategy has not been merely to provide unique quality and choice in programming, but to invest in new features, like
interactivity and expanded coverage. In our agreements with the
NFL and NASCAR, for example, we have brought an array of excit-

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15
ing enhancements to fans in the last year. Through our agreement
with baseball, we look to do the same thing for baseball fans, bringing more games, more HD, more interactivity, and new types of
coverage to fans.
Beginning in 2009, the MLB Channel will feature year-round, 24hour baseball coverage, a truly new service for baseball fans.
DIRECTV is a minority partner in this channel, because we bring
unique expertise in sports television, and we will help build the
channel. Our equity stake also reflects our willingness to provide
the initial subscriber commitment, which is necessary to launch the
channel. This is the same type of equity we have received from
other channels, and our competitors also get equity interest when
they provide launch platforms for new channels.
Our competitors object to the bundling of EXTRA INNINGS
rights with distribution for the Major League Baseball Channel.
Yet, they know that many channels have been built that way.
Comcast bundles its regional sports networks and national channels with emerging channels like G4. Broadcast networks do the
same thing with their stations. Dozens of cable networks got their
start that way.
DIRECTV has pursued all of our initiatives with the customer in
mind, first and foremost. While our agreements may require customers that want EXTRA INNINGS to switch to DIRECTV, we
provide the transfer at no cost to the customer, and proudly provide each customer with the high-quality service that continues to
beat our competitors in independent research studies. We also took
the extra step in EXTRA INNINGS to agree to have the games
available on the web.
More broadly, DIRECTV has only pursued potential exclusive arrangements on niche programming, targeted at a small fraction of
the audience. EXTRA INNINGS is a premium service, offering outof-town games. Only one-half of one percent of U.S. households
subscribed last year. DIRECTV has not sought exclusives from
mainstream, must-have programming like network programming
or local sports. Our cable competitors cannot say the same thing.
Finally, our agreement comports with the policies Congress established to create a competitive marketplace. Congress can always
change these policies. But, it should do so within a framework of
a broader review of competition and access issues. Such an examination might address issues such as the tying of video and
broadband access services. Why, for example, does cable consider it
fair competition to punish broadband subscribers that do not want
their video, but it is unfair competition for us to distinguish ourselves with niche sports packages?
In Washington, D.C., for example, Comcast charges 70 percent
more for a customer who chooses stand-alone broadband service.
And, if this Committee is concerned about sports programming, it
should begin by examining the worst instances of sports withholding. In Philadelphia and San Diego, half a million satellite subscribers cannot watch their home teams.
In summation, we pursued a fair, competitive process where we
entered an agreement that enables us to bring exciting, expanded
content to baseball fans, and were committed to do so as
seamlessly as possible. Together with MLB, we will provide more

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baseball to more fans in a more compelling format than ever before. Im happy to take any questions from the Committee.
[The prepared statement of Mr. Carey follows:]
PREPARED STATEMENT

OF

CHASE CAREY, PRESIDENT

AND

CEO, DIRECTV, INC.

Chairman Inouye, Vice Chairman Stevens, and members of the Committee, my

name is Chase Carey. I am the President and CEO of DIRECTV. Thank you for inviting me to testify today regarding DIRECTVs recently announced agreement with
Major League Baseball (MLB) to continue to carry MLBs EXTRA INNINGS package of out-of-town baseball games.
I would like to address four issues today. First, Ill describe the fair, open, and
arms length negotiation for carriage of EXTRA INNINGSa negotiation resulting
directly from the pro-competitive, pro-consumer policies Congress has put in place.
DIRECTV has entered into a carriage agreement with MLB, while EchoStar and a
consortium of the biggest cable operators remain free to match DIRECTVs offer
until Opening Day. So when our competitors complain that they dont have rights
to EXTRA INNINGS, what theyre really saying is that theyd like to pay less for
those rights than DIRECTVa lament common to many MVPDs in many circumstances.1
Second, I will address another aspect of competition at workDIRECTVs plan to
transform EXTRA INNINGS from a mere collection of games in low definition to
a truly compelling, high definition experience for the most avid baseball fans. Regardless of whether our competitors step up to the plate, DIRECTV intends to make
more baseball available to more fans in a more compelling format than ever before.
This is a big win for baseball fans.
Third, Ill explain how the competitive marketplace Congress created will ensure
that fans of our Nations pastime will not be left behind. If EchoStar and the cable
consortium step up and match DIRECTVs offer, their subscribers will continue to
have access to this programming from those providers. If they dont, subscribers who
want to switch to DIRECTV can do so seamlessly. The small number of subscribers
who do not or cannot switch will be able to watch games over broadbandan increasingly viable alternative to traditional television.
Fourth, while DIRECTVs agreement with MLB is entirely consistent with the
policies Congress established to create a competitive marketplace, Congress can always change those policies. But I would respectfully suggest that, if this Committee
is concerned about competition and access issues, these issues should be examined
within the broader context of communications and competition policy. Such an examination might address topics such as the tying of video and broadband access
services, the slow-rolling of access to Internet video, tying arrangements for programming imposed by competitors with market power, and home-team sports
exclusives. DIRECTV would be happy to participate in such a discussion.
I. DIRECTV Negotiated a Fair and Arms Length Agreement With MLB;
Cable and EchoStar Can Have the Same Deal if They Want It
It is sometimes difficult to remember that, little more than a decade ago, Americans had only one choice of multichannel video providerthe cable monopoly.
Today, nearly every American can choose among their cable operator, DIRECTV,
and EchoStar. Verizon and AT&T now also offer service in many parts of the country.
These competitors have differentiated themselves in the marketplace. Cable, and
now Verizon and AT&T, compete by offering a triple play of voice, video and
dataa bundle that DIRECTV cannot yet offer on its own. EchoStar has carved out
a niche as the low-cost provider, and offers a host of foreign language exclusives.
And DIRECTV differentiates itself through an unparalleled selection of sports programming and unmatched technical innovationincluding an investment of hundreds of millions of dollars on new satellites to offer consumers their local broadcast
stations in HD and over 100 national HD programming services. These unique offerings helped DIRECTV to differentiate itself and begin to break the stranglehold of
the cable monopolies. The cable industry, in turn, found itself forced to spend billions to innovate and become more responsive to consumers desirestoday offering
1 Time Warners top programming negotiator recently said as muchstating that she was not
sure why people have criticized the deal as if it were rigged against competition, when the
issue really boils down to the evaluation of whether acquiring programming is too expensive
or not. SkyReport E-News, Mar. 13, 2007.

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17
a competitive, attractive package that includes its own differentiated video-on-demand and bundled Internet offerings.
Cable, to be sure, still possesses an overwhelming market share, which distorts
competition to this day. But the fact remains that today there is competition where
before there was none. This is the success story Congressand this Committee, in
particularhelped write.
And this is the context in which DIRECTV negotiated its agreement to carry
EXTRA INNINGS. Several months ago, MLB initiated discussions with a number
of MVPDs and their affiliatesincluding DIRECTV, EchoStar, and iN DEMAND
(owned by Comcast, Time Warner, and Cox)regarding carriage of EXTRA INNINGS. These discussions concerned both exclusive and non-exclusive carriage.
Each competitor was given the opportunity to compete for EXTRA INNINGS. And
each did.
In the end, despite the fact that it has a modest nationwide market share, only
DIRECTV showed an interest in carrying EXTRA INNINGS on terms acceptable to
MLB, including helping to launch the MLB Channel and carrying it widely to our
subscribers. So earlier this month, DIRECTV and MLB announced that they had
reached agreement for carriage of EXTRA INNINGS and the MLB Channel.
That agreement gave DIRECTVs competitorsall of whom had a seat at the
table during the first round of negotiationsyet another turn at bat. Until Opening
Day, MLB will allow incumbent MVPDs willing to agree to terms equivalent to
DIRECTVs carriage arrangement to offer their subscribers this programming. In
other words, Comcast and Cox and Time Warner and EchoStar can provide out-oftown games to their subscribers if they want to. The agreement says only that they
cannot do so on the cheap. So if they agree to pay the price DIRECTV pays, agree
to carry the MLB Channel in the same manner as DIRECTV, and agree to comply
with the other terms and conditions that apply to DIRECTV, they can carry EXTRA
INNINGS. Its their choice. This is why Time Warners top programming negotiator
recently said she was not sure why people have criticized the deal as if it were
rigged against competition, when the issue really boils down to the evaluation of
whether acquiring programming is too expensive or not. 2
Now that both iN DEMAND and EchoStar have access to EXTRA INNINGS on
comparable terms and conditions as DIRECTV, we expected EchoStar and the cable
industry to stop complaining and start competing. But they havent. Now theyre
claiming that MLBs offer to match DIRECTVs terms isnt fair.
They first contend that the agreement is unfair because DIRECTV will have an
ownership interest in the MLB Channel (not in MLB or the EXTRA INNINGS package). But this isnt unfair at all. To begin with, because of DIRECTVs ownership,
MLB cannot offer DIRECTV the MLB Channel on an exclusive basis. If DIRECTVs
competitors think DIRECTVs ownership interest is inconsistent with this obligation, they already have an avenue for redress at the FCC.3 Moreover, granting
DIRECTV an ownership interest in exchange for its willingness to be the first
mover in carrying this channel is a very common industry practice. The FCC reports that cable operators own dozens of channels, including many of the most important regional sports networks (RSNs) such as those in New York, Chicago,
Philadelphia, San Diego and Washington D.C.3
DIRECTVs rivals also complain that the distribution requirements for the MLB
Channel that DIRECTV agreed to are too onerous. This is nothing but a public relations ploy. If anything, the distribution requirement actually favors cable operators.
Based on the distribution formula in the agreement, DIRECTV has to distribute the
MLB Channel to roughly 80 percent of its total subscribers, while cable operators
would have to distribute it to approximately 40 percent of their total subscribers.
The very terms for distribution cable denounces as unfair are equivalent to, or in
many instances less stringent than, the requirements cable operators demand for
the programming they themselves own.
DIRECTVs rivals may not like these terms. But parties who do not like terms
of carriage cannot cry foul on that basis alone. This is how programming negotiations work. If an MVPD believes that programming is too expensive, it can choose
not to carry the programming. This happens all the time. EchoStar, for example,
doesnt carry the YES network for this very reason, so EchoStar subscribers in New
York cant watch most Yankees games. MLBs insistence that other MVPDs live by
2 SkyReport

E-News, Mar. 13, 2007.

3 General Motors Corp., Hughes Electronics Corp., and The News Corporation Limited, 19 FCC
Rcd. 473 (2004) (News-Hughes).
4 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, 21 FCC Rcd. 2503 App. C (2006).

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18
the same deal DIRECTV did isnt unfair, it is simply the marketplace at workand
surely isnt a subject worthy of Congressional intervention.
II. DIRECTVs Carriage of EXTRA INNINGS Will Be a Big Win for Fans
I do not know whether EchoStar and the cable industry will ultimately match
DIRECTVs offer to carry EXTRA INNINGS. I do know, however, that DIRECTV
has big plans for EXTRA INNINGSwhich is one reason why we have (so far) been
willing to pay more than anybody else for it. DIRECTV will make more baseball
available to more fans in a more compelling format than ever before.
For starters, DIRECTV will add a mosaic channel and a Strike Zone channel
(similar to the NFL Sunday Ticket Red Zone Channel) that will deliver live cut-ins
of games throughout the country. We will also provide great entertainment to fans
with real-time scores, player and team stats and other innovations that complement
the sport of baseball. Most importantly, DIRECTV expects to provide most, if not
all, games in high definition for the 2008 baseball seasonan innovation that most
cable operators cannot match.
Moreover, as part of the EXTRA INNINGS agreement, DIRECTV will also make
The MLB Channel widely available when the channel launches in 2009.
DIRECTVs transformation of EXTRA INNINGS should come as no surprise. This,
after all, is what DIRECTV has done for other programming. For example,
DIRECTV recently completely revamped supplemental coverage of NASCAR races.
The cable industry had the rights to NASCAR content for years, but did little with
this programming and attracted only 30,000 customers in 2006. DIRECTV obtained
the rights this year to what is now NASCAR Hotpass, and debuted a service at this
years Daytona 500 that bears little resemblance to cables bare-bones offering.
DIRECTVs NASCAR Hotpass features five dedicated Driver Channels, each focusing on an individual driver and offering multiple camera angles, real-time stats,
team audio communications and dedicated announcer teams. Although the NASCAR
season started only recently, DIRECTV already has more than three times the subscribers to this programming than the cable industry had in 2006.
DIRECTV expects that once it adds interactive features, high-definition service,
and the MLB Channel, many new subscribers will sign up for EXTRA INNINGS
with DIRECTV. This will make DIRECTVs service more attractive than our cable
competitors. Those competitors, in turn, will have to improve their services to keep
up. This, again, is the vibrant competitive marketplace that Congress envisioned at
work.
III. The Competitive Marketplace Envisioned by Congress Will Provide
Numerous Alternatives for Baseball Fans
The same competitive marketplace that permitted DIRECTV to obtain the rights
to EXTRA INNINGS in a fair and open manner will also ensure that baseball fans
will continue to be able to watch their favorite teams. Right now, both EchoStar and
iN DEMAND have the option to continue to provide this programming to their subscribersif they are willing to pay the fair price negotiated at arms length between
DIRECTV and MLB. Even if DIRECTV remains the only MVPD to carry EXTRA
INNINGS, however, non-DIRECTV subscribers will not be harmed in any meaningful way.
First, consumers can switch to DIRECTV with no start-up costs, no equipment to
buy, and no installation charges. When they do so, they will get a better service at
a better value than is offered by cable. DIRECTV, unlike cable, is 100 percent digital. DIRECTV offers more programming than cable. On average, DIRECTV costs
significantly less per channel than cable. And DIRECTVs customer service is second
to nonehaving surpassed the cable industry average in each of the last 6 years.5
This, again, is how a competitive marketplace is supposed to work. Unfortunately,
cable operators are doing their best to prevent this. Cable, for example, penalizes
customers by dramatically increasing the price of Internet service if the customer
drops cables video service. To overcome cables barriers, DIRECTV has chosen to
offer customers who want to switch no up-front costs and more compelling content.
Second, every single game carried on EXTRA INNINGS will remain available online through MLB.com. Internet video is improving dramatically,6 and MLB announced its intent to offer upgraded picture quality this season. Thus, subscribers
who choose not to (or cannot) subscribe to DIRECTV will still be able to watch the
5 See Steve Donohue, DIRECTV Tops J.D. Power Survey, Multichannel News, Aug. 16, 2006,
available at http://www.multichannel.com/article/CA6363083.html.
6 See, e.g., Peter Grant, Plugging the Web Into the TV, Wall St. J., Aug. 4, 2006, at A11 (describing the rapid advances in online video, and stating that, with a TiVo device, one cant even
tell whether it came from the TV or off the Internet.).

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19
games of their choice. Here again, however, cable operators are attempting to hinder
the marketplace. If cable did not prohibit a direct connection between the Internet
and the set top box, MLB.com could easily be viewed on television sets.
Third, the arrangement will not disrupt competition among MVPDs. To begin
with, relatively few subscribers are affected at all. Only 230,000 non-DIRECTV customers subscribed to EXTRA INNINGS last yearless than one -half of one percent
of all television homes.7 DIRECTV estimates that there are relatively few viewers
no more than 3 percent of the cable segment (approximately 180,000 EXTRA INNINGS subscribers)who cannot receive DIRECTV service. This translates to
roughly 5,000 subscriberseach of whom can access the games over the Internet.
Moreover, this agreement does not deny a single fan the right to follow his or her
home team. In all of its programming arrangements, DIRECTV has been respectful
of fans rights to view their home team sports. EXTRA INNINGS is a premium
package of out-of-town gamesdesigned to serve baseballs most avid fans without
adversely affecting viewership of MLBs national and local telecasts. By contrast,
our cable competitors have withheld core home team sports programming from nearly half a million satellite customers in Philadelphia and San Diego.
Fourth, the marketplace will continue to provide subscribers without EXTRA INNINGS a wealth of options for watching their favorite sport. If EXTRA INNINGS
were to disappear tomorrow, MLB would still offer more televised games by far than
any other U.S. sport. Regardless of the MVPD to which they subscribe, fans
throughout the country can watch their home team on broadcast television or
RSNsassuming that cable-affiliated RSNs continue to make their programming
available to all MVPDs at non-discriminatory rates. In addition, fans without
EXTRA INNINGS can still watch an impressive number of out-of-town games. On
average, more than 400 games are televised in each marketon local broadcast television, RSNs, and MLBs national partners FOX, TBS, and ESPN.
IV. A Broader Review of Competition Policy May Be Appropriate
Members of this Committee are naturally concerned about consumer choice and
access to content. So is DIRECTV. But Congress cannot examine these issues in a
vacuumand certainly should not start with this arms length, pro-competitive deal.
If it truly seeks to ensure that every American has a choice among video providers
and access to content, this committee can choose among any number of issues that
affect far more consumers.
If, for example, this committee is concerned about the ability of subscribers to
switch MVPDs, it might examine why cable operators dramatically increase the
price for their broadband service to subscribers that switch from cable to satellite
for video service. In Washington, D.C., for example, Comcast charges $33.99 for
Internet service when bundled with video and voice, but $57.95 for stand-alone
Interneta 70 percent increase in price. Even though DIRECTV offers a lower price
for a better video service, consumers with cable modems lose money by choosing
DIRECTV. If Congress seeks to maximize consumer choiceas it shouldcables
tying of Internet and video services is worthy of review.
If this committee is concerned that viewers might be denied access to content they
wish to view, it might examine whether cable operators should be able to degrade
the service their broadband subscribers receive when accessing video content from
non-affiliated websites (or entities that do not pay to ensure access), or preclude
such access altogether. As more and more video content migrates to the Internet,
cable operators will increasingly have the incentive and ability to determine what
their broadband subscribers can and cannot see. A cable operator could even, for example, prohibit a baseball fan from visiting MLB.com (or, more likely, could slowroll communications to that site compared with communications from its own site).
If this committee is concerned about bundling channels in contract negotiations,
it might wish to focus more broadly on tying arrangements imposed by parties with
market power. For example, Comcast recently required DIRECTV to distribute its
G4 gaming channel to 80 percent of its subscribers in order to continue to carry
Comcast SportsNet Mid Atlantic at market rates. A broader examination of arrangements like this would consider the pros and cons of todays programming marketplace and possible ideas for revising it.
And finally, if this Committee is concerned about sports programming, it should
begin by examining the worst instances of sports withholding. Congress and the
FCC have found repeatedly over the years that cable operators can abuse their formidable market power by arranging to withhold programming they own. And they
do that today in Philadelphia and San Diego, where half a million satellite sub7 Not to minimize the inconvenience to these customers, but it is worth noting that that tens
of millions of subscribers churn, switching video providers every year.

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20
scribers cannot watch their home teams. Surely thatand not an arms length, nonexclusive, pro-competitive deal such as that between DIRECTV and MLB for carriage of out-of-town gamesis worthy of this committees consideration.
*
*
*
*
*
The video marketplace continues to evolve as competition takes hold under the
regime Congress has put in place. DIRECTVs arrangement with MLB is part of
that processthe result of fair and open competition for programming that even
today remains available to DIRECTVs rivals. DIRECTV intends to upgrade EXTRA
INNINGS significantly, giving avid baseball fans more than they have ever had
from this package before. We will also make the transition of any subscriber who
wants this programming from DIRECTV as seamless as possible. In the end, then,
DIRECTVs agreement with MLB is an example of how the competitive marketplace
created by this committee is workingnot how it needs to be changed.

Senator KERRY. Thank you very much, Mr. Carey, I appreciate

it.
Senator KERRY. Mr. Vogel?
STATEMENT OF CARL VOGEL, PRESIDENT AND
VICE CHAIRMAN, ECHOSTAR SATELLITE, L.L.C.

Mr. VOGEL. Chairman Stevens, Senator Kerry, members of the

Committee, on behalf of EchoStar Satellite, I want to thank you for
inviting our company to discuss the important issue of exclusive
programming and its impact on consumer choice.
My name is Carl Vogel, and I am President and Vice Chairman
of EchoStar. Since we began offering services 11 years ago,
EchoStars DISH Network has grown to become the fourth-largest
multi-channel video provider in the country, serving more than 13
million customers.
Mr. Chairman, I would ask that my written testimony be submitted to the record.
Senator KERRY. It will be.
Mr. VOGEL. Exclusive content distribution deals in any major
sport today do not promote competition. They harm existing consumers, while limiting choices in the future. As we sit here today,
the deal presented by Major League Baseball is designed to be an
exclusive deal for DIRECTV in substance, despite statements to the
contrary regarding form and the opportunity to opt-in.
The terms offered by Major League Baseball effectively tie the
carriage of the EXTRA INNINGS package today to a firm commitment to launch the Major League Baseball Channel to over 10 million of our subscribers in 2009. We find these demands inconsistent
in a climate where Congress, the FCC and the American public are
asking for more choice, not less.
Despite these onerous terms, we at EchoStar stand ready to
match the current offer, in its entirety, to protect our consumers,
and remain competitive. However, in its entirety must be apples to
apples, which requires ownership of the Major League Baseball
Channel. We have made these points clear to both Major League
Baseball and DIRECTV. In response to our request, in a letter
dated March 22nd from Major League Baseball, they state they are
not in a position to offer any equity in connection with the opt-in
opportunity without DIRECTVs consent.
Notwithstanding the irony of a distributor with a minority interest determining the fate of the Major League Baseball Channel, it
will be interesting to see whether that consent is forthcoming, and

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21
with what conditions, as DIRECTV reconciles whether it wears its
ownership hat for the Major League Baseball Channel, or its hat
as a competitive distributor.
With only 4 short days to bring this to conclusion, it appears
these negotiations for the EXTRA INNINGS package may need
extra innings themselves.
Given this set of circumstances, the deal with Major League
Baseball and DIRECTV regarding the EXTRA INNINGS package
will likely proceed as an exclusive, disenfranchising over 300,000
consumers nationwide. Numerous distributors, including EchoStar,
were part of building the EXTRA INNINGS brand and consumer
appeal over the last 10 years. Those customers are now being subjected to an exclusive bait-and-switch by Major League Baseball.
Creating exclusivity with sports content is anti-competitive. Its
particularly problematic when that very programming has been
available to a number of consumers, from a number of distributors
for a number of years.
The EXTRA INNINGS package became available on DISH Network 3 years ago, and many of our subscribers who have chosen
this season ticket live in rural areas. These customers most likely
have chosen DISH Network as a result of our low prices and flexible packaging. In every case, our customers had the option of
choosing DIRECTV, and didnt. This incremental increase in
EXTRA INNINGS subscriptions clearly represents the best example, where increasingrather than restrictingaccess to sports
content has worked for the benefit of consumers.
Major League Baseball now wants to limit access and rationalize
the fan displacement by stating DIRECTV will provide equipment
and installation free of charge. This alternative fails to recognize
any price differentiation between EchoStar and DIRECTV. In
many cases, a switch to DIRECTV is tantamount to a 33 percent
rate increase, just to gain access to the EXTRA INNINGS package.
For Major League Baseball to reach into consumers pockets, and
suggest this is a reasonable choice, is not only disrespectful, but
clearly points out Major League Baseball has, in this instance, relegated themselves to a well-compensated sales agent for DIRECTV.
Our motives are very straightforward. We want to compete. In
conclusion, were quite certain that consumers would far prefer a
world where exclusives over regional sports, the NFL Sunday Ticket and the EXTRA INNINGS package did not exist. Such relationships currently do not promote competition, but rather limit consumer choice to one provider. This proposed EXTRA INNINGS exclusivity with DIRECTV does not expand the market, it merely
provides for the migration of subscribers from many providers to
one.
Certainly, exclusive content relationships today may be within
the letter of the law, but they cant possibly meet the spirit of Congressional intent.
Thank you, and I look forward to answering your questions.
[The prepared statement of Mr. Vogel follows:]

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PREPARED STATEMENT OF CARL VOGEL, PRESIDENT
ECHOSTAR SATELLITE, L.L.C.

AND

VICE CHAIRMAN,

Chairman Kerry, and members of the Committee, on behalf of EchoStar Satellite,

I want to thank you for inviting our company to discuss the important issue of exclusive sports programming.
My name is Carl Vogel, and I am President and Vice Chairman of EchoStar. Since
we began offering service 11 years ago, EchoStars DISH Network has grown to become the 4th largest multi-channel video provider in the country serving more than
13 million subscribers.
Exclusive content distribution deals in any major sport today do not promote competition. They harm existing consumers while limiting choices in the future.
As we sit here today, the deal presented by Major League Baseball is designed
to be an exclusive deal for DIRECTV in substance, despite statements to the contrary regarding form and the opportunity to opt-in.
The terms offered by Major League Baseball effectively tie the carriage of the
EXTRA INNINGS package today to a firm commitment to launch The MLB Channel to over 10 million of our subscribers in 2009. We find these demands inconsistent in a climate where Congress, the FCC, and the American public are asking
for more a-la-carte choices.
Despite these onerous terms, we stand ready to match the current offer in its entirety to protect our consumers and remain competitive. However, in its entirety
must be apples-to-apples, which will require EchoStar to acquire a pro-rata ownership of The MLB Channel. In a letter dated March 22nd, from Major League Baseball, they state they are not in a position to offer any equity in connection with this
opt-in opportunity without DIRECTVs consent. It will be interesting to see whether that consent is forthcoming, and with what conditions, as DIRECTV reconciles
whether it wears its ownership hat for the MLB Channel or its hat as a competitive
distributor. With only four short days to bring this to conclusion, it appears the negotiations for the EXTRA INNINGS package may need some extra innings themselves.
Given this set of circumstances, the deal with Major League Baseball and
DIRECTV regarding the EXTRA INNINGS package will likely proceed as an exclusive deal, disenfranchising over 300,000 consumers nationwide. Numerous distributors, including EchoStar, were part of building the EXTRA INNINGS brand and
consumer appeal over the past 10 years. Creating exclusivity with sports content is
anticompetitive; however, it is particularly problematic when that very programming has been available to a number of consumers, on a number of platforms, for
a number of years.
The EXTRA INNINGS package became available on DISH Network 3 years ago
and many of our 55,000 subscribers who have chosen this season ticket live in rural
areas. These consumers most likely have chosen DISH Network as a result of our
low prices and flexible packaging. The incremental increase in EXTRA INNINGS
subscriptions clearly represents the best example where increasing, rather than restricting access to sports content has worked in favor of consumers.
Major League Baseball now wants to limit access and has rationalized the fan displacement by stating DIRECTV will provide equipment and installation free of
charge. This analysis fails to recognize any price difference between EchoStar and
DIRECTV. In many cases, a switch to DIRECTV is tantamount to a 33 percent rate
increase just to gain access the EXTRA INNINGS package. For Major League Baseball to reach into consumers pockets and suggest this is a reasonable choice is not
only disrespectful but clearly points out that Major League Baseball has in this instance, relegated themselves to a well compensated sales agent for DIRECTV.
Our motives are very straightforward. We want to compete.
In conclusion, we are quite certain that consumers would far prefer a world where
exclusives over regional sports, the NFL Sunday Ticket and the EXTRA INNINGS
package did not exist. Such relationships do not currently promote competition, but
rather limit consumer choice to one provider. This proposed EXTRA INNINGS exclusivity with DIRECTV does not expand the market; it merely provides for a migration of subscribers from many providers to one. Certainly, exclusive content relationships may today be within the letter of the law, but they cannot possibly meet
the spirit of Congressional intent.
Thank you, and I look forward to answering your questions.

Senator KERRY. Thank you very much, Mr. Vogel. I appreciate it.
Mr. Jacobson?

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23
STATEMENT OF ROBERT D. JACOBSON, PRESIDENT AND CEO,
IN DEMAND NETWORKS, L.L.C.

Mr. JACOBSON. Thank you, Mr. Chairman, Mr. Vice Chairman,

my name is Rob Jacobson. Im the President and CEO of iN DEMAND.
iN DEMAND is a programming company owned by Comcast,
Time Warner Cable, and Cox Cable. We provide a variety of entertainment programming, including sports packages such as NHL
Center Ice, NBA League Pass, MLS Direct Kick, and until this season, MLB EXTRA INNINGS.
There has been a lot of controversy about DIRECTVs attempt to
get exclusivity for baseballs EXTRA INNINGS package. Baseball
recently said it would offer that package to us, but for reasons Ill
explain, that offer was unreasonable, and clearly designed to protect the exclusive arrangement that had previously been agreed to
by DIRECTV and baseball.
In order to break the log-jam, and ensure that consumers across
America have access to the games, last week we made a counteroffer. We agreed to carry EXTRA INNINGS, and the Baseball
Channela new channel not projected to launch until sometime in
2009on the same terms as DIRECTV, which is what baseball
said, publicly, they were looking for. Our offer was not exclusive.
Baseball immediately rejected that offer, and today, we are offering
to carry EXTRA INNINGS on the same terms as DIRECTV, and
put off the issue of the Baseball Channel until it actually launches.
This would ensure that for the next 2 years, at least, all baseball
fans would have access to the EXTRA INNINGS package. If were
unable to reach an agreement, and the channel launches, we give
baseball the right to cancel the EXTRA INNINGS deal. We think
this is a fair compromise.
Let me give you a little history and tell you why our offer is in
the best interest of sports fans everywhere. Weve offered EXTRA
INNINGS on a non-exclusive basis since July 2001. Our most recent agreement with baseball expired at the end of last season. We
began discussions with baseball almost a year ago to renew our
non-exclusive deal. Last summer, baseball asked whether wed be
interested in offering EXTRA INNINGS on an exclusive basis. We
said that would not be in the best interest of baseball fans and
would not be viable for us, given the program access rules, which
prohibit exclusive contracts for cable-affiliated programmers like iN
DEMAND. We expressed a strong desire to continue to license the
EXTRA INNINGS on a non-exclusive basis. We even offered a 400
percent increase in guaranteed fees, to no avail.
A major sticking point in the negotiations was baseballs insistence that cable could only carry EXTRA INNINGS if it also agreed
to deliver the Baseball Channel to millions of customers, regardless
of whether they wanted to view, and pay for, the channel.
In late February, several weeks prior to the announcement of the
DIRECTV deal, we made a proposal that ensured baseball would
be guaranteed $100 million annually for EXTRA INNINGS. We
also committed that iN DEMANDs owners would distribute the
Baseball Channel to 15 million homes at baseballs requested price.
We made a binding offer that was non-exclusive, and we did not

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24
ask for an ownership interest in the Baseball Channel. Baseball
never called us back.
Eventually, baseball decided to pursue an exclusive agreement
with DIRECTV. The public reaction was overwhelmingly negative.
In response, baseball and DIRECTV decided to dress up their exclusive deal to make it look like it wasnt exclusive. Baseball said
it would give iN DEMAND the opportunity to match the
DIRECTV deal, but we had to do so by the end of this month, or
the games would be unavailable to cable subscribers for the next
7 years. But, baseballs proposal to cable is dramatically more expensive for cable than it is for DIRECTV. In order to get EXTRA
INNINGS, baseball is insisting that iN DEMANDs owners pay a
disproportionate share of the $100 million annual cost of EXTRA
INNINGS, and carry the Baseball Channel on terms significantly
more onerous than DIRECTV. In addition, baseball gave DIRECTV
a 20 percent ownership interest in the Baseball Channel, and said
it will not offer iN DEMAND a similar interest. Baseballs claim
that its merely asking iN DEMAND and EchoStar to match the
DIRECTV deal is wrong. In fact, taking into account all elements
of baseballs offer, baseball is insisting that we pay many times
more than what it had asked DIRECTV to pay.
Last year, EXTRA INNINGS was available to almost 100 million
homes. Under an exclusive DIRECTV deal, it would only be available to DIRECTVs 16 million customers. Over 80 million cable and
EchoStar customers would be denied access to the games. This
would be especially unfair to the many fans who previously purchased and enjoyed those games.
DIRECTV says theres no harm, because these are only out-ofmarket games, not home games. But, if youre a Red Sox fan living in Washington, D.C., the Nationals are not your home team.
Baseball has a choice. It can offer the games to 100 million homes,
or 16 million homes. Either way, its guaranteed $100 million per
year. We think the choice is obvious. Thank you for the opportunity
to testify today.
[The prepared statement of Mr. Jacobson follows:]
PREPARED STATEMENT

OF ROBERT D. JACOBSON,
IN DEMAND, L.L.C.

PRESIDENT

AND

CEO,

Mr. Chairman and members of the Committee, my name is Rob Jacobson, and I
am President and CEO of iN DEMAND.
iN DEMAND is a programming company owned by Comcast, Time Warner Cable,
and Cox Cable. We provide sports, movies, and other entertainment programming
through our INHD high-definition channel, pay-per-view, subscription video-on-demand, and out-of-market sports packages. We sell these services to a variety of distributors, including cable, overbuilders, telcos, and DBS. Our sports packages include NHL Center Ice, NBA League Pass, MLS Direct Kick, and, until this season,
MLB EXTRA INNINGS. We have been effectively frozen out of negotiations for the
NFL Sunday Ticket by the NFL.
There has been a lot of controversy about DIRECTVs attempt to get exclusivity
for MLBs EXTRA INNINGS package. MLB recently said it would offer that package to us, but for reasons Ill explain, that offer was unreasonableand clearly designed to protect the exclusive arrangement that had previously been agreed to by
DIRECTV and MLB.
In order to break the log-jam and ensure consumers across America have access
to the games, last week we made a counter-offer. We agreed to carry EXTRA INNINGS and The Baseball Channel, a new MLB channel not projected to launch
until sometime in 2009, on the same terms as DIRECTVwhich is what MLB said

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25
publicly they were looking for. Our offer was not exclusive. Were ready to execute
an agreement by Opening Day. MLB immediately rejected that offer.
Even now, we would enter into a deal for carriage of EXTRA INNINGS on the
same terms as DIRECTV. If The Baseball Channel launches in 2009, we would give
MLB the right to cancel the EXTRA INNINGS deal if it cannot reach a satisfactory
agreement for carriage of the new channel with our owners. This would put off the
issue of The Baseball Channel until it actually launches and ensure that for the
next 2 years at least, all baseball fans will have access to the EXTRA INNINGS
package. We think this is a fair compromise.
Let me give you a little history and tell you why our offer is in the best interests
of sports fans everywhere.
We have offered EXTRA INNINGS on a non-exclusive basis since July 2001. Our
most recent agreement with MLB expired at the end of last season.
We began discussions with MLB almost a year ago to renew our non-exclusive
deal. Last summer, MLB asked whether we would be interested in offering EXTRA
INNINGS on an exclusive basis. We said that would not be in the best interest of
baseball fans and would not be viable for us given the program access rules, which
prohibit exclusive contracts for cable-affiliated programmers, like iN DEMAND. We
expressed a strong desire to continue to license EXTRA INNINGS on a non-exclusive basis. We even offered a substantial increase in guaranteed feesan increase
of nearly 400 percentto no avail.
A major sticking point in the negotiations was MLBs insistence that cable could
only carry EXTRA INNINGS if it also agreed to deliver The Baseball Channel to
millions of customers, regardless of whether they wanted to view and pay for the
channel.
In late February, we made a proposal to MLB that ensured MLB would be guaranteed $100 million annually for EXTRA INNINGS and committed that iN DEMANDs owners would distribute The Baseball Channel to 15 million homes at
MLBs requested price per subscriberall on a non-exclusive basis. MLB never
called us back.
Eventually, MLB decided to pursue an exclusive agreement with DIRECTV. The
public reaction was overwhelmingly negative.
In response, MLB and DIRECTV decided to dress up their exclusive deal to make
it look like it wasnt exclusive. MLB said it would give iN DEMAND the opportunity
to match the DIRECTV deal, but we had to do so by the end of this month or
the games would be unavailable to cable subscribers for the next 7 years. The problem is that MLB is not really interested in a non-exclusive deal with cable and
DIRECTV. Its proposal to cable is, in fact, dramatically more expensive for cable
than it is for DIRECTV and is unreasonable and unfair.
In order to get EXTRA INNINGS, MLB is insisting that iN DEMANDs owners
agree to assume a disproportionate share of the $100 million annual cost of EXTRA
INNINGS and agree to carry The Baseball Channel on terms significantly more onerous than DIRECTV. In addition, MLB gave DIRECTV a 20 percent ownership interest in The Baseball Channel and said it will not offer iN DEMAND a similar interest or comparable economics. MLBs claim that it is merely asking iN DEMAND
and EchoStar to match the DIRECTV deal is wrong. In fact, taking into account all
of the elements of MLBs offer to us, including the fact that it gave an ownership
interest to DIRECTV but refused to give an ownership interest to us, the amount
MLB is insisting that iN DEMAND pay is many times greater than what it has
asked DIRECTV to pay.
MLB has claimed that we previously made an exclusive offer for EXTRA INNINGS. That is not true. At one point, MLB became concerned that if it did a deal
with us, DIRECTV would walk away from EXTRA INNINGS. MLB insisted that if
that happened we would have to make up the money it lost because DIRECTV
walked away. We agreed to do that, but we never bid for exclusive rights for EXTRA
INNINGS, nor did we want exclusive rights.
Last year, EXTRA INNINGS was available to almost 100 million homes. Under
an exclusive DIRECTV deal, it would only be available to DIRECTVs 16 million
customers. Over 80 million cable and EchoStar customers would be denied access
to the games. This would be especially unfair to the many baseball fans who previously purchased and enjoyed those games.
DIRECTV says there would be no harm because these are only out-of-market
games, not home games. But if youre a Red Sox fan living in Washington, D.C.,
the Nationals are not your home team. If an exclusive deal were allowed to stand,
hundreds of thousands of fans across America would no longer be able to watch
their favorite teams.
And, were not talking just about baseball. DIRECTV has out-of-market NFL
games and early rounds of the NCAA basketball tournament exclusively. We used

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26
to have a NASCAR package which allowed us to show races from cameras inside
the cars. Now DIRECTV has that NASCAR package exclusively. DIRECTVs strategy is to capture exclusivity for high-profile sports across-the-board. That is not fair
to consumers.
MLB has a choice. It can offer the games to 100 million homes or 16 million
homes. Either way it is guaranteed $100 million per year. We think the right choice
is obvious. On behalf of baseball fans everywhere, we appreciate the Committees
willingness to hold this hearing and we look forward to working with you to find
effective solutions to this growing problem.
Thank you for the opportunity to testify today.

Senator KERRY. Thank you very much, Mr. Jacobson.

Professor Ross?
STATEMENT OF STEPHEN F. ROSS, DIRECTOR AND
PROFESSOR OF LAW, INSTITUTE FOR SPORTS LAW, POLICY
AND RESEARCH, THE DICKINSON SCHOOL OF LAW,
THE PENNSYLVANIA STATE UNIVERSITY

Mr. ROSS. Mr. Chairman, Senators. Thank you very much, for inviting me today. Its an honor to appear on this side of the table,
returning after 20 years of being behind you, when I used to work
as a counsel on the Senate Judiciary Committee. Its a pleasure to
be back on the Hill.
Ive heard all of this testimony about how fair or unfair
everybodys being to each other, but the issue before this Committee ought not be whos being fair to competitors, but how they
are being fair to the Anchorage resident who, as Senator Stevens
correctly points out, is an out-of-market fan for every team. To
some of Senator Kerrys constituents parents, who have retired to
Florida or Arizona, and are avid members of Red Sox Nation. To
the fan of a club other than the Philadelphia Phillies, who lives in
the South New Jersey area, and wants to follow the 76ers and Flyers as well as their favorite team. I have to concede, knowing Minnesota, that I think its really very public-interested of Senator Klobuchar to be here, since virtually everybody in Minnesota is a
Twins fan, but nonetheless, there may be a few recent imports
there, or National League fans who cant stand the designated hitter, who want to get out-of-market games there.
And these consumers will clearly be harmed, if they prefer other
rivals to DIRECTV, for other reasonsperhaps beyond their control. Moreover, if the other people at this table respond the way
that, in an un-regulated, normal marketplace, you would expect
people to respondwhich is by entering into their own exclusive
dealthis will get worse for everyone.
This is not like Sears getting an exclusive with Levis jeans,
where Lees can respond with an exclusive with Macys, and consumers simply have to walk across the shopping mall. If Mr.
Jacobsons members respond by expanding on the examples that
Mr. DuPuy and Carey criticized, and then if Mr. Vogel responds in
a similar manner, you really have consumers getting harmed in a
very significant way, by this deal.
Unlike the exclusive practices that Mr. Carey discussed, its far
different to try to differentiate yourself with international programming, targeting a completely separate audience, than when youre
entering into exclusive deals targeting the same audience. If you
are an immigrant, and you enjoy TV from South Asia, you can sub-

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27
scribe to Mr. Vogels client. If you are interested in some of the
high-quality NASCAR programming, you can subscribe to Mr.
Careys programmingthese deals were discussing today apply to
millions of consumers, across the board, its fundamentally different.
This would not be a problem if there were not two fundamental
non-competitive marketplace problems. First, this is not really a
deal between Major League Baseball and DIRECTV. This is a deal
between 30 Major League Baseball owners, who under the common
law have the right to sell their games everywhere, and have chosen, all of them, to sell rights exclusively through this particular
deal. Some of you might have been as surprised as I was to realize
that only half of 1 percent of Americans subscribe to out-of-market
baseball, when there are 90 million Americans who no longer live
where they grew up. Why dont more Americans watch their national pastime and their favorite team? Its because, they may not
be interested in paying $160 last year, $200 next year (if you dont
get a head start) for EXTRA INNINGS, because they might just
want to watch their own team. But, they cant watch only their
own team. I cannot call up Frank McCourtthe owner of the Los
Angeles Dodgersand get a deal to watch Dodger games in Central Pennsylvania. The only way to do it is through Major League
Baseball, because of an agreement thatwith regard to the National Football Leaguewas held illegal in 1953.
Second, this would not be a problem if there was aggressive competition between about 10 retail outlets for cable or satellites, and
DIRECTV did not have an opportunity to profit on its Choice package, which is why its drivingit wants to drive so many people to
get its Choice package. If it didnt make extra money on its Choice
package, it couldnt have afforded to pass this on to Major League
Baseball.
Thus, Mr. Chairman, sports is a unique programming driver.
And so, special legislation is justified, if the industry cant work out
a deal itself. Now, it may befrom listening to all of these partiesthat were just quibbling about the deal. But, for those of you
who were in Washington, D.C. last year, you saw how long it took
to work out a deal to get the Nationals to come here over the objections of the Orioles; how long it took for Mr. DuPuywith brilliant
negotiation on his partto finally put together a package to buy
off Peter Angelos; how long it took to have an addition deal to get
Washington Nationals games on cable so people in this area could
watch Nationals games.
Now, in the end, it all worked out. But the question is, how long
should American baseball fans have to suffer while these people at
this party finally work out a deal that will achieve Mr. DuPuys
goal of as much distribution of the national pastime as possible?
Id be happy to answer your questions.
[The prepared statement of Mr. Ross follows:]
PREPARED STATEMENT OF STEPHEN F. ROSS, DIRECTOR AND PROFESSOR OF LAW,
INSTITUTE FOR SPORTS LAW, POLICY AND RESEARCH, THE DICKINSON SCHOOL OF
LAW, THE PENNSYLVANIA STATE UNIVERSITY
Mr. Chairman and members of the Committee:
It is an honor and privilege to be invited to join a panel of industry leaders to
offer an independent view, based on over two decades of scholarship and teaching

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28
concerning sports and competition policy, in discussing the impediments to the free
flow of interstate commerce as millions of Americans seek ways to take advantage
of technological advances to watch non-local Major League Baseball games in their
homes.
General Thoughts on Exclusive Dealing
The issue before the Committee today is whether the exclusive dealing arrangement between Major League Baseball (MLB) and DIRECTV, whereby DIRECTV becomes the only source for out-of-market games not shown on national networks, is
in the public interest. As the Supreme Court has recognized,1 exclusive dealing arrangements are both legitimate and indeed can have pro-competitive effects. In traditional markets where consumers have free access to retail markets, the Court has
declared that, as a matter of antitrust law (in my view, this reasoning also applies
to sound regulatory policy), these arrangements should only be questioned when
there is a serious risk that they will foreclose access to supply or outlet by other
firms.2 Thus, an agreement by Sears to exclusively sell Levis blue jeans is unlikely
to harm consumers; there are ample other retail outlets for Levis rivals, and ample
other jean manufacturers for Sears competitors. If there are efficiencies in exclusivity, the likely market response is for Lee to reach an exclusive deal with Macys,
etc. Consumers unhappy with Sears selection are only harmed to the extent they
have to walk across the shopping mall.
Harm to Baseball Fans
In contrast, baseball fans face significant harm because of various pre-existing
agreements as well as the recently announced exclusive MLB/DIRECTV deal. Those
who have other reasons to prefer DISH Network or cable must either forego quality
telecasts of out-of-market baseball games,3 or suffer exploitation by subscribing to
multiple multi-channel video distribution platforms that require the purchase of duplicate programming and unnecessary equipment. The exclusive deal reinforces the
harm that already befalls the millions of Americans who do not live within the local
media market of their favorite team, because of a horizontal market division agreement entered into by MLB owners that, in the context of football, has been illegal
for over 50 years.4 There is no public interest justification in forcing consumers to
purchase a distribution platform that is inferior for their needs, or duplicate platforms, just to watch their favorite teams. These consumers include:
Residents in areas with heavy thunderstorm activity (such as Florida) who prefer cable because of concerns about weather-related interference with important
sports broadcasts
Residents of local markets (like metropolitan Philadelphia and southern New
Jersey) who are fans of local basketball and hockey teams but out-of-market
baseball teams, and would under planned agreements be required to subscribe
to cable for some teams and satellite for others
Virtually all residents of states without a local team (like Alaska, Hawaii, or
Nevada) or states with many retirees from other states (like Florida, California,
or Arizona): there is no reason that the only way they can watch games of their
favorite teams is to acquire a single product, MLB EXTRA INNINGS TM, from
a single retailer, DIRECTV
1 Tampa

Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961).

At 334.
antitrust analysis properly focuses on whether a product or service faces competition from reasonable substitutes that will draw consumers if there is a small but significant
increase in price or decrease in quality of the good or service in question. Courts have generally
found that major sports are sufficiently unique in consumers heartsbaseball is, after all, the
national pastimethat a small increase in the price of watching a favorite baseball team will
not send enough fans to the library or to cricket websites to render the move unprofitable. See,
e.g., National Collegiate Athletic Assn v. Board of Regents, 468 U.S. 85 (1984) (college football
is a market distinct from professional football or other forms of entertainment); International
Boxing Club v. United States, 358 U.S. 242 (1959) (championship boxing is a market distinct
from non-championship boxing).
Likewise, the issue here concerns quality telecasts to be displayed on television sets of increasing size and clarity. Although some fans may prefer the convenience of watching webcasts
of out-of-market games on their computers, or others are willing to endure the significant reduction in picture quality when subscribing to mlb.com, these webcasts are not the sort of reasonable substitutes for EXTRA INNINGS TM that either antitrust doctrine or public policy ought
require.
4 United States v. National Football League, 116 F.Supp. 319 (E.D. Pa. 1953).
2 Id.

3 Standard

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29
Consumers in multi-residence dwellings who are not allowed to select their preferred retailer, and where the landlord, homeowners association, or other decision-maker is insufficiently interested in baseball to switch to DIRECTV
Restraints on Interstate Commerce: Horizontal Market Division
To be clear, the agreement that sparked this hearing did not arise from the free
market. First, there is the horizontal market division by MLB owners. Under the
common law, the home team owns a property right in the radio and television rights
to baseball games.5 However, the MLB owners have agreed to significant limitations
on these common law rights. Each club will only broadcast games in its assigned
geographic territory, licensing the visiting club for the purpose of broadcasting
games in its own home territory, and assigning to MLB the exclusive right to sell
games not only to free-to-air networks (a right protected by the Sports Broadcasting
Act) but most significantly the exclusive right to sell non-network games to satellite
or cable only through MLB EXTRA INNINGS TM (which is not exempt from antitrust scrutiny).
Were it not for this web of agreements, the MLB/DIRECTV deal would raise few
problems for consumers. Those interested in the convenience of a single package of
all out-of-market games could purchase EXTRA INNINGS TM from DIRECTV. A Los
Angeles Dodgers fan outside southern California, or someone who simply enjoyed
the final years of play-by-play from hall-of-famer Vin Scully, would likely find it possible to purchase Dodger telecasts, acquired from the Dodgers by DIRECTV, DISH
Network, or the local cable company. Other intermediaries might offer a syndicate
of games in competition with EXTRA INNINGS TM.
Antitrust precedents suggest that the MLB agreements are anti-competitive and
ought to be illegal. In United States v. National Football League,6 a very sophisticated district court decision that presaged by 30 years the antitrust analysis of
broadcast restraints later adopted by the Supreme Court,7 the court noted that
sports leagues had a unique interest in promoting competitive balance among member teams so that, to the extent that a rival teams out-of-market telecast would significantly harm live attendance, the league could agree to prevent this. However,
the court rejected the NFLs effort to bar out-of-market telecasts that simply competed with the home teams telecast of road games: the only effect there was to limit
output and raise rights fees for the home team, a result that was not legitimate or
pro-competitive. As later courts have recognized,8 leagues can adequately protect
competitive balance with regard to television rights sales by revenue sharing, rather
than output limits.
The courts have also recognized, in antitrust litigation, that broad licenses awarded by competing copyright holders through intermediaries can be pro-competitive,
when these are non-exclusive licenses. Thus, the Supreme Court rejected a lower
court holding that Broadcast Music and ASCAP violated the Sherman Act by offering a blanket license for the vast majority of copyrighted songs.9 On remand, the
court of appeals upheld the legality of the arrangement, but only after finding that
potential licensees had real alternative ways of acquiring rights.10 This was because
the Justice Department had challenged, many years ago, the agreement among almost all the Nations songwriters to grant exclusive licenses to BMI or ASCAP
grants akin to the out-of-market assignments that individual team owners have
made to DIRECTVand the parties by consent decree had agreed to limit the license to a non-exclusive grant.11
It is bad enough that these agreements meet the hallmark definition of unreasonable restraints of trade, by increasing price, reducing output, and rendering output unresponsive to consumer demand.12 In fact, these agreements are even more
inefficient and anti-competitive than would be the case if all rights to all games
were assigned to a single entity. Because the additional costs of showing games to
out-of-market fans is virtually zero, such an entity would likely sell, in addition to
local rights and EXTRA INNINGS TM, other packages to other consumers. For example, there are surely many fans who would pay, on a per game or per team basis,
for out-of-market games. These are not authorized now, not because the sale would
5 See,

e.g., Pittsburgh Athletic Co. v. KQV Broad. Co., 24 F. Supp. 490 (W.D. Pa. 1938).
F. Supp. 319 (E.D. Pa. 1953).
Collegiate Athletic Assn v. Board of Regents, 468 U.S. 85 (1984).
8 Chicago Professional Sports Ltd. v. National Basketball Assn, 961 F.2d 667 (7th Cir. 1992).
9 Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979).
10 Columbia Broadcasting System, Inc. v. American Socy of Composers, Authors & Publishers,
620 F.2d 930 (2d Cir. 1980).
11 CBS v. Broadcast Music, 441 U.S. at 1011, citing United States v. American Socy of Composers, Artists & Publishers, 19401943 Trade Cas. (CCH) 56,104 (S.D.N.Y. 1941).
12 NCAA, 468 U.S. at 107.
6 116

7 National

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30
not be profitable, but because the MLB owners can not agree on how to divide the
profits.13
Insufficient Competition in Multi-Channel Video Distribution
An analysis of the economics of rights sales for out-of-market games demonstrates
that the current scheme would be implausible except for two additional deviations
from the free market: (1) insufficient competition between DIRECTV, DISH Network, and cable permits excess profits from consumers of basic premium programming; (2) by tying the sale of EXTRA INNINGS TM to its Choice package,
DIRECTV is able to increase its excess profits and the agreement in question reflects a sharing of those increased excess profits between DIRECTV and Major
League Baseball.
Although there are important differences in the economics of English football and
North American sports, on both sides of the Atlantic we see leagues that offer entertainment products with no reasonable substitutes selling broadcast rights to a major
programmer in return for a large, fixed sum of money. Policy questions about exclusive agreements for prime sports programming have also arisen in the United Kingdom, and have been insightfully analyzed in a working paper widely distributed
among sports economists.14 Economists David Harbord and Marco Ottaviani detail
the profit-maximizing strategy for the various market participants. First, they note
that leagues are likely to sell rights for a fixed rather than per-subscriber fee. A
fixed fee avoids the problem of the rights-purchaser tacking on its own excess profits
charge to that imposed by the league.15 Because MLB doesnt know precisely how
many fans will subscribe to EXTRA INNINGS TM, or how effectively DIRECTV will
market the product, it has an even greater incentive to sell for fixed fees, as the
rights-purchaser is better able to accept the risk of marketing the product effectively
during the course of the contract. If the rights purchaser is effective in maximizing
revenues from resale and advertising, results of which are usually reported in the
trade press, the league can profit from the rights purchasers success to secure even
higher rights fees for the next contract. (For example, the NFLs first network contract with CBS gave each owner $300,000/yr. Three years later, the second contract
gave each owner $1 million/yr.)
Next, Harbord & Ottaviani explain why a rights-purchaser, having paid a lumpsum to obtain rights for which there was no substitute, would want to re-sell rights
on a per-subscriber basis to its cable and satellite rivals. Ordinarily, they observe,
by re-selling to rivals, the rights purchaser increases the marginal operating costs
for its rivals at the same time it fetches additional revenue. This makes reselling
more profitable for the firm which acquires the rights, and hence more likely to
occur. 16 Re-selling on a per-subscriber basis results in higher rights fees (because
the league can capture a portion of the additional profit to be obtained from reselling on a per-subscriber basis) and maximizes output (more people subscribe).
Applied to American baseball, Harbord & Ottavianis analysis suggests that
DIRECTV would find it profitable to resell EXTRA INNINGS to cable networks and
DISH Network, and that MLB would share in this profit through a higher lumpsum fee for the exclusive rights to out-of-market baseball games. So why have
DIRECTV and MLB done the opposite? We can infer from the parties preference
13 There are at least two recent examples of this phenomenon. In 1992, the English Premier
League, having agreed to show 60 of its 380 matches exclusively on the BSkyB satellite, rejected
BSkyBs offer to show 90 matches for a 50 percent increase in fees. At about the same time,
the National Basketball Association succeeded in strictly limiting the very popular broadcasts
of the Chicago Bulls featuring Michael Jordan, despite evidence that Bulls broadcasts had minimal effects in other markets, refusing to copy MLBs practice of taxing superstation revenue.
14 David Harbord & Marco Ottaviani, Contracts and Competition in the Pay-TV Market,
London Bus. School Dept of Economics Working Paper No. DP 2001/5, available at http://papers.ssrn.com/sol3/papers.cfm?abstractlid=289334.
15 This phenomenon is known to economists as double marginalization. Suppose the profitmaximizing price for EXTRA INNINGS TM is $160/year. (Any increase in price reduces demand,
unless a product is essential to life. Thus, raising the price from $150 to $160 will cause some
marginal consumers to discontinue patronage, but if the number is small enough, the increase
is profitable. If 100 consumers refuse to go along with the increase, this would cost MLB/
DIRECTV $15,000. But if a 10,000 consumers are willing to pay $160, this is an additional
$100,000. At some point, the number of consumers discontinuing purchases outweighs the additional income, just short of that point is the profit-maximizing price.) If MLB sold rights on a
per-subscriber basis, they would want to fix the price at $160 minus DIRECTVs costs. If these
costs were $5/subscriber, MLB would set the rights sale at $155. However, this would leave
DIRECTV with no excess profits. DIRECTV would rather get some excess profits, even at the
expense of losing some customers. So DIRECTV would be likely to charge $170 or more, costing
MLB some customers and some profit. These problems are avoided by a lump-sum sale.
16 Harbord & Ottaviani, supra, at 8. To the extent that there are strategic gains from raising
rivals cost, the incentive to re-sell is even stronger.

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for an exclusive deal that DIRECTV is willing to forego this opportunity, and indeed
pay MLB more than the total amount that MLB might reasonably expect to receive
from sales of EXTRA INNINGS through various retail outlets. This is because
DIRECTV would prefer to force some out-of-market baseball fans to switch their patronage to DIRECTV, rather than obtain all the revenue from out-of-market fans,
regardless of which retailer these fans patronize. DIRECTVs ability to obtain
more revenue from those fans that remain with or switch to DIRECTV than it could
by charging the full monopoly price for EXTRA INNINGS TM to all out-of-market
fans is most likely due to their ability to obtain even greater super-competitive profits from those that switch.
Suppose one million fans would be willing to subscribe to EXTRA INNINGS TM
at $160 per season, but that 200,000 of these will not patronize DIRECTV (perhaps
they fear thunderstorms, prefer programming available only on cable, cant afford
two systems in areas where local cable is unavailable, dont have a clear south-facing view on their property, must use the system subscribed by the landlord, etc.).
Thats $32 million in lost revenue. The exclusive deal means that DIRECTV plans
on making this up by obtaining new customers from cable or DISH Network. If
300,000 EXTRA INNINGS customers switch to DIRECTVs Choice package (at $480/
yr) + EXTRA INNINGS TM, thats an additional $144 million in revenue (from
Choice, not MLB games, which these fans were already purchasing via cable or
DISH Network). If DIRECTVs operational and programming costs in servicing the
new customers was not well below $144 million, this scheme wouldnt be profitable.
Only the excess profits on the Choice packagewhich baseball fans are required to
purchase as a condition of subscribing to EXTRA INNINGS TMis what allows
DIRECTV to profitably enter into an exclusive deal.
One other explanation is theoretically possiblethat there are huge cost-saving
efficiencies from an exclusive dealing arrangement. However, no one has, to date,
seriously made this claim on behalf of MLB or DIRECTV.
Summary of Economic Analysis
The foregoing analysis suggests that the MLB/DIRECTV exclusive deal reflects
the ability of these sellers to exploit baseball fans because of the lack of any substitute products, and thus impose a monopoly price and significantly reduce output.
Out-of-market games will henceforth only be available on DIRECTV, presumably at
the monopoly price. The absence of alternative means of obtaining out-of-market
games means millions of consumers will pay more. But it also means that output
is substantially reduced, because of foregone purchases (all of which would be considerably above the marginal cost of production) from (i) expatriate fans of one particular team willing to pay a lower price to watch their favorite team but unwilling
to pay for the EXTRA INNINGS package; (ii) avid fans who have other preferential
reasons to prefer to continue to subscribe to cable or DISH Network; (iii) marginal
customers of satellite programming, who otherwise prefer DIRECTVs programming
but decline to pay the basic premium price charged by DIRECTV because it reflects in part the need to share profits with MLB. This is bad public policy.
Ways That Legislation Can Protect Consumers
There are a number of ways that existing or potential legislation could protect
baseball fans against exploitation by inefficient and anti-competitive broadcast
agreements:
Existing antitrust laws could be used to invalidate these unreasonable restraints of trade.
Specific antitrust legislation could be enacted to facilitate this result.
Regulatory legislation could minimize the excess profits that satellite and cable
providers enjoy from their basic premium packages, or could directly prohibit
the bundling essential to the exclusivity scheme by requiring a la carte pricing.
Strategic legislation could also be introduced by leading members of this committee as a means of facilitating voluntary pro-consumer compliance by industry.
Existing Antitrust Enforcement
As detailed below, even vigorous enforcement of the antitrust laws by the Justice
Department would face significant obstacles to quick resolution in time to protect
sports fans. Unfortunately, the record of the current Antitrust Division leadership
does not lead to a confident prediction of such enforcement. The obstacles to private
litigation to effectively protect consumers are even greater. For these reasons, reli-

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ance on existing law is unlikely to constitute an adequate public policy response by
this Congress.
A government enforcement action should be able to rely on the precedents discussed above to establish that the horizontal restraint among MLB clubs is an unreasonable restraint of trade. The exclusive broadcast territories are neither necessary to promote competitive balance among member teams nor to prevent any efficiency-deterring free riding. The only way in which a clubs sale of their games into
another geographic market could harm competitive balance would be if the additional revenue generated from these out-of-market rights fees would enable the
teams to acquire enough talent to enable them to dominate the league. This scenario
is implausible for a number of reasons. There is no evidence that these fees would
be significant enough to affect competitive balance. More important, there is no reason why the leagues could not share these revenues, as Major League Baseball has
with teams whose games are carried nationwide via locally-based superstations.
Nor can the leagues, in this context, sensibly claim that the restraint is an intrafirm restraint among the single entity of the league, rather than the horizontal
agreement among independent clubs. Because of the economics of rights sales, a single firm would sell all rights in all games that are going to be televised to the highest bidder, who could then re-sell the games to consumers in a price discriminating
manner designed to yield the greatest revenue (noting again that the marginal costs
of selling a game once it is being televised is virtually zero). The EXTRA INNINGS
package is the only way that out-of-market fans can get games, not because this is
DIRECTVs preference, but because it is the choice of the majority of MLB clubs.
DIRECTV would clearly be better off if it could price discriminate by selling the
EXTRA INNINGS package to those with a demand for over 1,000 baseball games,
and selling a smaller package of games (or even individual games on a pay-per-view
basis) to its subscribers unwilling to pay for EXTRA INNINGS. Rather, individual
games are unavailable to out-of-market fans, despite the potential for profitable
sales, because transactions costs prevent owners from agreeing on how to divide the
spoils. As a result, the interest of the league-as-a-whole in maximizing revenues
from television sales is subordinated to the interests of individual teams in protecting their own local broadcast rights and preventing rivals from attaining a competitive advantage from more successful out-of-market rights sales. This is not the
unity of interest that the Supreme Court has required to exclude agreements
among formally separate entities from review under section 1 of the Sherman Act.17
Existing precedents with regard to tying arrangements might also support a claim
that DIRECTVs practice of bundling EXTRA INNINGS TM with its $40/mo. Choice
package is also unreasonable. However, there are several serious obstacles to successful government prosecution of such a lawsuit. First, MLB could claim that the
judicially-created baseball exemption applies to broadcast restraints. Although good
arguments can be made that the exemption does not apply,18 the result is ultimately an uncertain question likely to require ultimate resolution, after years of litigation, by the Supreme Court. Second, although DIRECTVs bundling practices
would appear to be unreasonable under existing precedents,19 these precedents have
17 Copperweld

Corp. v. Independence Tube Corp., 467 U.S. 752, 771 (1984).

18 When the Supreme Court last revisited the issue in Flood v. Kuhn, 407 U.S. 258 (1972),
the Court explicitly rejected its original holding that baseball was not interstate commerce, instead re-affirming the exemption because of baseballs unique characteristics and needs and
Congress positive inaction in sustaining the judicial precedents. It is clear that baseball has
no unique characteristics and needs with regard to broadcasting, a fact Congress recognized by
including baseball as a sport covered by the limited exemption for package sales to free-to-air
networks contained in the Sports Broadcasting Act. Congress positive inaction with regard to
the baseball exemption, upon which Justice Blackmun relied in Flood, related almost entirely
to labor restraints. When Congress overturned that specific aspect of Flood in enacting the Curt
Flood Act of 1995, it is clear that continuing legislative concern almost entirely related to protecting the unique characteristics and needs of minor league baseball, not broadcasting practices
that MLB shares in common with the NBA and the NHL.
In addition, lower courts have suggested that the exemption applies only to the business of
baseball and not to the business of broadcasting. Henderson Broad. Corp. v. Houston Sports
Assn, 541 F. Supp. 263 (S.D. Tex. 1982). Especially in light of courts explicit recognition that
MLB can lawfully require clubs to share revenues from rights sales, Chicago Professional Sports
Ltd. Partnership, supra, 961 F.2d at 675, there is no reason why subjecting television agreements to standard antitrust analysis would compromise the business of baseball.
19 The current Supreme Court doctrine is expressed in Jefferson Parish Hospital Dist. No. 2
v. Hyde, 466 U.S. 2 (1984). Firms engaged in a substantial amount of interstate commerce may
not force consumers to purchase a product, service, or copyright license as a condition of purchasing a more desired license, where the seller has market power, the arrangement requires
the purchase of two separate products, and the tying is not necessary to introduce a new product or to ensure the reliable use of either. Applying this precedent, it is clear that DIRECTV
has market power in the sale of EXTRA INNINGS TM, as there are no reasonable substitutes

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come under criticism by commentators 20 and justices.21 Moreover, current regulation of cable and satellite practices by the FCC might be held to preclude antitrust
scrutiny of this behavior.
Private enforcement is even more problematic. The obstacles stated above pose
major litigation risks that would deter private antitrust attorneys from commencing
expensive litigation. Because the proposed exclusive deal is prospective, treble damage relief (and accompanying attorneys fees funded by the damage award) would not
be available for that aspect of the challenge. My own experience as a public interest
advocate has been that private firms are unlikely to view the grant of statutory attorneys fees provided for in the Clayton Act as a sufficient economic incentive to
undertake the costs of uncertain litigation. In addition, private litigation on behalf
of consumers who currently patronize DIRECTV would have to confront complex
issues that would arise in light of the contract-by-adhesion DIRECTV requires all
customers that provides for disputes to be arbitrated.
New Antitrust Legislation
This committee could defer to your Judiciary Committee colleagues, who could
consider specific legislation that amended the Sports Broadcasting Act to prohibit
the sort of bundling or exclusive dealing practices identified in this testimony. There
is a long history of specific legislation enacted by Congress to outlaw specific anticompetitive practices: indeed, the Clayton Act was passed to specifically outlaw
tying arrangements arguably illegal under the Sherman Act, over the objections of
former President William Howard Taft, who left the White House to accept a
chaired professorship at Yale Law School and wrote a book arguing for the adequacy
of the Sherman Act on this and other points.22
Regulatory Legislation
As Judge Richard Posner famously observed, a firm that has no market power
is unlikely to adopt policies that disserve its consumers; it cannot afford to. And if
it blunders and does adopt such a policy, market retribution will be swift. 23 The
corollary, of course, is that firms with market power can afford to disserve consumers and market retribution will not be swift.
Either expressly, or by delegation to the FCC, this committee could craft legislation that recognizes that market retribution is not swift in either the market for
out-of-market baseball games or the market for delivery of multi-channel video distribution. A variety of regulatory approaches might be considered. I would be
pleased to continue to work with you and your staff if any of these are of particular
interest:
Listed Events Legislation: A variety of other countries have enacted legislation
that specifically requires a variety of important sporting events to remain on
free-to-air television, for the benefit of millions of consumers.
A La Carte Pricing: Satellite and cable companies could be prohibited from requiring lengthy subscriptions to their basic premium packages as a condition
of subscription to high-demand sport programming. The analysis above suggests
that DIRECTV would quickly lose its incentive to pay MLB for exclusive rights
if cable subscribers could, in a secondary market, acquire DIRECTV equipment
and then simply subscribe to EXTRA INNINGS TM without having to pay $40/
mo. for Choice.
Specifically Ban Sports Exclusivity: Unlike general delegations contained in the
Sherman Act or the Federal Communications Act, Congress is free to write specific legislation to deal with specific industry problems. Based on the economic
analysis summarized above, the Committee could conclude that copyright holders and their licensees can fully exploit their intellectual property rights by sale
and re-sale and there is no legitimate justification (sharing in excess profits
for out-of-market MLB games. Forcing purchasers of EXTRA INNINGS TM to purchase the
Choice package constitutes a tied sale, because there is distinct and separate consumer demand
for both products. Finally, there is no need to tie well-established programs in the Choice package with uniquely desirable MLB games in order to penetrate a market, and there are no reliability issues in subscribing to one or the other.
20 See, e.g., Robert Bork, The Antitrust Paradox, 365381 (1978).
21 See, e.g., Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 487 (Scalia, J., dissenting); Hyde, 466 U.S. at 32 (OConnor, J., concurring).
22 William Howard Taft, The Anti-Trust Act and the Supreme Court (1914).
23 Valley Liquors, Inc. v. Renfield Importers, Ltd., 678 F.2d 742, 745 (7th Cir. 1982).

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from limited retail competition is not legitimate) for exclusive agreements in
this area.24
Strategic Behaviorby Major League Baseball and by the Senate Commerce Committee
Both business and political actors often behave strategicallythey act in a way
that may or may not further immediate short-run goals in order to achieve longrun objectives. Although MLB owners are rightly accused of being short-sighted and
greedy in some instances, there are many other occasions where MLB owners have
decided that the long-term health of the national pastime is more important. It is
possible that this is one of those occasions: that MLB owners see a strong future
in the development of The Baseball Channel, and the exclusive agreement with
DIRECTV is simply a negotiating strategy to persuade DISH Network and cable
companies to re-sell The Baseball Channel on favorable terms.
If market retribution were swift among cable and satellite programmers, this
would not be a problem. If MLBs demands were not unreasonable, then so many
consumers would shift to DIRECTV that rival MVPDs would have to go along. If
MLBs demands were unreasonable, then DIRECTV would lose so much money that
it would eventually back out. However, anyone inside the Beltway is familiar with
the lack of swift retribution reflected in the lengthy negotiations that were required
before millions of Capital-area baseball fans could obtain Washington Nationals
local broadcasts on their stations. The FCC has already recognized that market retribution is not swift in a number of non-sports contexts involving cable mergers, requiring programmers and distributors to either reach agreement on terms or submit
their unresolved disputes to binding commercial arbitration.
There are a variety of situations where public policy may require government
intervention, but where the best solution would be a voluntary agreement among
private parties rather than direct legislation. An excellent example of that technique
was recently employed by this committee, when under Senator McCains chairmanship there were explicit overtures to MLB owners and players to agree on new procedures for steroid testing or face Federal legislative intervention. The result was
a voluntary deal that is probably superior to anything Congress could have done.25
Likewise, if it appears that the best resolution of this controversy is voluntary
agreement among MLB and the various programming distributors, perhaps this
committee could proceed strategically by threatening onerous legislation (barring
collective sales of sports broadcasting rights to satellite and cable, mandating a la
carte programming, authorizing FCC rate regulation of premium programming, etc.)
unless the parties reach a voluntary agreement or agree to submit the matter to
binding commercial arbitration.
Conclusion
The MLB/DIRECTV exclusive deal is not like a facially-similar contract between
Sears and Levis. Rather, the deal reflects (1) cartel behavior by MLB clubs in refusing to sell out-of-market rights to their games except via EXTRA INNINGS TM on
DIRECTV and (2) a willingness of DIRECTV to share the excess profits it enjoys
from its Choice package with MLB. Millions of baseball fans who no longer live near
their favorite teams are harmed by their inability to watch their teams local broadcasts except via EXTRA INNINGS TM, and harmed particularly by being forced to
do so via DIRECTV. This committee has a variety of arrows in its legislative quiver
to protect consumers from this sort of exploitation.
24 This legislation would also prevent cable companies from aggressively competing in a consumer-harming way by acquiring their own exclusive sports programming rights and refusing
to re-sell to satellite outlets.
Another example, of perhaps little interest to most Americans but of keen interest to millions,
especially recent immigrants from south Asia or the United Kingdom, concerns the rights to satellite broadcasting of international cricket matches. Thus, DISH Network obtained exclusive
rights for the International Cricket Councils World Cup contests currently being played in the
West Indies, while DIRECTV obtained exclusive rights to a large number of international contests throughout the year. Devoted cricket fans need to either subscribe to both or forego the
ability to watch these matches in their homes.
25 The substance of the agreement, and whether the agreement or proposed legislation accurately reflects the public interest in an appropriate balance between protecting (i) players
health, (ii) the integrity of the game from health-harming, performance-enhancing behavior, and
(iii) privacy rights, is of course beyond the scope of this testimony as well as my scholarly expertise.

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Senator KERRY. Thank you very much, Professor, we appreciate
the testimony very much. Weve been joined by Senator Lautenberg, Senator Klobuchar.
Senator Klobuchar, do you have any opening you want to make?
Senator KLOBUCHAR. Ill say a few remarks with my questions,
Senator Kerry. Thank you.
Senator KERRY. Thank you very much.
Senator Lautenberg?
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY

Senator LAUTENBERG. If I may, Mr. Chairman.

I appreciate the fact that youre holding this hearingthank you,
Mother.
[Laughter.]
Senator KLOBUCHAR. Im letting that go, Senator Lautenberg.
Senator KERRY. I would, if I were you.
[Laughter.]
Senator LAUTENBERG. With new ways to access TV programming
from satellite dishes, digital cable, through the Internet, and even
television on cell phones, our ability to access programs seems to
be increasing substantially. And its nearly unimaginable that, as
the number of ways to watch this programming increases, its becoming more difficult for some people to actually watch individual
programs. And yet, it appears that this is exactly whats happening.
Mr. Ross noted the New Jersey problem, and we had faced a serious problemas far as we were concernedlast year. The Rutgers
football team finished the season ranked 12th in the country, and
was invited to play in the Texas Bowl. You can imagine what kind
of spirit followed them from the State of New Jersey.
But, because the NFL owned the rights to broadcast the Bowl,
and the League was in a dispute with the cable companies over the
new NFL Network, 1.7 million out of a population of 2.5 million
cable customers1.7 out of 2.5 millionhad no way to watch Rutgers play in that game.
Well, luckily after a week of negotiations between the NFL and
New Jerseys cable companies and my office, we were able to strike
a deal that got the game on TV.
Now, Im a former businessman, and I understand that cable
companies, satellite providers and sports leagues all want to turn
a profit, thats not an inappropriate thing at all. But, what we
must make sure is that the consumer doesnt lose out.
And as I look at Major League Baseballs EXTRA INNINGS deal
with DIRECTV, Im particularly concerned about baseball fans in
South Jersey. Now, Philly fans in South Jersey must subscribe to
Comcast to watch their team play, because of an exclusive deal,
and theres a lot of enthusiasm in South Jersey for the Phillies and
the Eagles and sports played in Philadelphia. But, if those same
fans want to watch other teams also, they may have to subscribe
to both Comcast and DIRECTV, and its not fair.
And, I do want to add to my comments, the fact that we finally
got cable and the National Football League Network really to sit
down and figure out a way to present this very exciting, unusual,

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unique experience that we had with Rutgers going to the Texas
Bowl. It took a lot of hard going, but I think all parties were principled in the fact that they understood that people in New Jersey
wanted desperately to see the game, and they did, and so it worked
out well.
Mr. Chairman, the same thing needs to happen here. Mr. Ross,
I heard you say that exclusivity was not ruled out as a legitimate
practice. But, our Committee here is going to stay tuned, based on
the leadership of Senator Kerry. We need to make sure that more
business opportunity for the leagues and cable companies translates into more choices for consumers.
Ive said it beforeTV watching has become the principal information dispenser in our world. We see it by the decline in newspaper interest, and the increasing opportunity that cable TV has to
present vital matters to the population at large.
And so, when it gets to that kind of a presence, youre looking
at something that is almost commodity-like in character. We have
to make sure that people arent deprived of this. Once again, I
state that the companies have a right to get a return on their investment and their hard work. But it cant be done without keeping
the interests of the public sharply in focus.
Thank you.
Mr. Chairman?
Senator KERRY. Thank you very much, Senator Lautenberg.
I appreciate the testimonies, I appreciate some of the point/
counter-point on the deal, and I want to try to see if we can flush
this out a little bit, to understand it so its easy for the consumer
and others who are trying to follow it.
Mr. DuPuy, let me just check with you on the guiding principles
as you approach this deal. I would assume that you buy into, or
support Commissioner Seligs notion of the social institution and
public responsibility component of baseball. And, I also assume
that as you approach thisor I would hopethat one of the guiding principles is the notion that you want this to be as accessible
to as many people as possible.
Mr. DUPUY. We want as muchas many games distributed to as
many people as possible. Thats correct, Mr. Chairman.
Senator KERRY. Now, just at first blush, sort of a quick take of
any laypersons looking at this deal, they look at DIRECTV and
they see 15 million subscribers. Now, understandably their notion
is here, youre going to market a good product, youre going to do
whatand I acknowledge, I think DIRECTVs NASCAR offerings
and other things are innovative, creative and interesting. And, it
has sparked a kind of consumer response. So, were assuming there
will be some uptake. But, whatever that uptake, however, 15 million is not 75 million. And 75 plus 15 is the 97 plus whatever that
is the current universe that is available to America.
So, how, from a laypersons point of view, do you make the judgment and come to the conclusion, Hey, its better to narrow this
down to 15 million people, rather than to have it available to almost 100 million people?
Mr. DUPUY. Three points, Mr. Chairman. First of all, we hope
that iN DEMAND and DISH opt in. We want it available to all
consumers.

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Second, it isnt 75 million. Its only available to digital homes,
and the digital home universe is less than that. My belief is that
iN DEMAND is about 32 million, that DISH is about 13, plus 16
for DIRECTV, so its about 61 million, versus the 90 or 100 million.
Senator KERRY. Well, lets say
Mr. DUPUY. But, the third, and
Senator KERRY. The same principle still applies, though.
Mr. DUPUY. And, we want it available to as many people as possible.
Senator KERRY. But it may not be. As the deal was constructed,
it wouldnt be.
Mr. DUPUY. But, the Baseball Channel, 24/7, 365 days a year,
will be available to 15 million fans coming out of the box. And we
view that as key, and critical to our survival. You heard Mr.
Jacobsons disdain for the Baseball Channel. We, as a business
matter, view the Baseball Channel as critical to our long-term survival, and in the interest of our fans who want more baseball. And
thats why we are willing to do a deal with DIRECTV, who has
supported the Baseball Channel, and the launch of the Baseball
Channel, to 15 million of our fans.
Senator KERRY. I dont think I read Mr. Jacobsons comments as
disdain, and I hope your negotiations arent in that sort of a state
of understanding at this point. I understood it as seeing it as a
channel thats down the road. Its not going to be out there until
2009, I believe, is that correct?
Mr. DUPUY. Weve had it on the drawing board now for 10 years
and
Senator KERRY. I understand.
Mr. DUPUY. Its launching in 2009.
Senator KERRY. Right. But, his counter-offerat least on its surface, and Im not getting into all of the numbers here, and Im not
trying to do a deal/counter dealbut just listening to what I heard,
that seemed like a pretty powerful offering to suggest. Youre going
to get the same money, you get the right of refusal to kick them
off if they dont take the channel when its up, and you have a 2
year basis for the fans to be able to continue to enjoy what they
enjoy today.
Now, for a fan consumer, reaching America basewhats the
matter with that?
Mr. DUPUY. We believe, number one, that DIRECTV has the
right to begin to help us build the channel, and to invest
Senator KERRY. Well, theres nothing to stop them from doing
that.
Mr. DUPUY. Well, it will. Because theres no guaranteeweve
seen what other leagues have gone through in their efforts to
launch channels. Weve seen whats happened with the NFL, weve
seen whats happened with the NBA. And there is no assurance
that we will gain carriage of the Baseball Channel, which is why
we made it a critical element of these negotiations, Mr. Chairman.
Senator KERRY. But againlets come back to that for a
minuteIm just trying to understand this.
Mr. DUPUY. Yes, sir.
Senator KERRY. What I heard is that you can go ahead and
youve got a 20 percent ownership thats going to DIRECTV, youd

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go forth in your joint venture, youd investas you arein the production of the channel. iN DEMAND, representing those cable interests would have the opportunity to offer the out-of-market
games now, this year, next year, and decide whether or not theyre
going to come in, on what terms, and negotiate with you. If they
dont, as I understand it, you can then take away from them the
EXTRA INNINGS.
Mr. DUPUY. Theyve had 9 months to negotiate this transaction,
Mr. Chairman. And it seems to me
Senator KERRY. Well, in fairness, during the period of that negotiation, as I understand it, you had rejected their offering. They offered three times more than what theyre currently paying for
EXTRA INNINGS.
Mr. DUPUY. Well, I dont believe that to be accurate on the math,
but we had a negotiation
Senator KERRY. Well, let me ask youam I misinterpreting
something, Mr. Jacobson?
Mr. JACOBSON. No, Senator, youve not misinterpreting it. In fact,
weve made several offers to baseball, all of which were rejected,
and as I mentioned, the last offer that we made prior to our
counter-offer last week, we offered 15 million subscribers for the
Baseball Channel. We offered up to $100 million a year for EXTRA
INNINGS, no share of the Baseball Channel, non-exclusive, and
that offer was not so much as responded to.
Senator KERRY. So, what are we missing here?
Mr. DUPUY. We did respond, Senator. We have a contract with
DIRECTV. We offered terms to iN DEMAND and DISH that were
in parity with the DIRECTV deal, and iN DEMAND had said no.
Senator KERRY. So, what it seemsiN DEMAND said no to the
parity, but when you say parity, parity is not parity if they dont
get ownership.
Mr. DUPUY. Well, I disagree with that, sir.
Senator KERRY. Why is that?
Mr. DUPUY. Well
Senator KERRY. Thats sort of apples and oranges, isnt it?
Mr. DUPUY. No, I dont
Senator KERRY. Well, you had one deal with DIRECTV, but
youre saying, if you offer the same thing to the others. But they
cant offer the same thing because they dont get an ownership.
Mr. DUPUY. We believe that the equity was for additional consideration, sir. We believe that the equity was as a result of DIRECTV
coming in, being the early mover, making the market. DIRECTV
agreed that they would provide 15 million homes. Mr. Carey signed
a blank piece of paper, and agreed to step up and guarantee 15
million homes.
Now, someone else wants to come in and say, Oh, now that you
have it established, and we know were going to have 15 million
homes, we want a piece of that equity, as well. It is very common
in the broadcast industry for the early movers to get a piece of equity. Much like iN DEMAND or Comcast owns Versus and owns
the Golf Channel, which are carried on satellite, very common to
give early movers a piece of equity.
Senator KERRY. Sure, I understand that. And, obviously in the
investing world you need to be able to cut that kind of deal, and

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I certainly respect the need to attract capital and go forward with
some kind of business plan, I understand that.
What Im trying to get at here, though, is representing the public
interest, and the fan base, it seems to me there ought to be some
way to skin this cat, where your equity is respected, where your
deal goes forward, but you still provide a fair access here for a
broader base to be able to share in this product. And, it would
seem to me, in the end, you all benefit. That everybody benefits.
Its a win-win-winyou win because youre going to have revenue
increased, youre going to have increased base to appeal to, you
folks win because you continue to carry, and the fans winmost
importantlybecause they get a multiple choice of how to access
this. Why is that unreasonable?
Mr. DUPUY. I come back to the first point I made, Mr. Chairman,
and that is we hope they do opt-in. But certainly, you wouldnt suggest that we would hand the games over to them at whatever price
they wish to pay
Senator KERRY. Im not suggesting that. But they have not, it
seems to me, tried to negotiate a whatever price. They have, in
fact, met your demand of a parityequal price, same pricebut
different level of subscribers.
Mr. DUPUY. Thats correct.
Senator KERRY. And its reasonable to understand why there
would be a different level of subscribers, because you cant get to
80 percent of 65 million, and consider that the same thing as 15
million. Am I wrong? Am I missing something, Professor Ross? Do
you want to weigh in?
Mr. ROSS. Im not sure if youre missing something, because Im
not an expert in this area, in the details of the commercial area.
I would add an analogy that the members of this committee may
be familiar with, because its something the FCC has done in many
cases. Recognizing the market imperfections, in cases where you
have vertical integration, they have recognized that theres a real
need to get a deal to be done so people can watch programming.
And, if parties cant agree to a deal, they have to agree to binding
commercial arbitration.
Now, youre a persuasive guy, Senator Kerry, so I have to say in
listening here, what you seem to say is making sense to me. I know
I have a great respect for Mr. DuPuys commercial acumen, so I
have some skepticism that maybe Im missing something in your
superficially what you have to say. But, one way to solve this
would be for the parties to all agree to binding commercial arbitration so they get a deal that is fair to them in some way, whatever
that is. And then the bottom line is Senator Lautenbergs concerns
are met, and fans arent deprived of games.
What is really going on here, is that in order to ensure maximum
access to the Baseball Channel in 2009, Major League Baseball is
trying to leverage that at the expense of fans now. It may be 10
years from now, fans will be better off, by that processmaybe not,
we dont know. But thats the dynamic here.
Senator KERRY. Well, its a fair question, but I thinkIm not
trying to reach too far here. Im trying to get into a sort of, you
know, reasonable place. But it does seem to me, Mr. DuPuy, that
whats driving this, to a large measure, at least from an outsiders

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perspective looking in, is MLBs commitment and passion for this
channel.
Mr. DUPUY. Thats correct, Senator.
Senator KERRY. Thats really whats driving it.
Mr. DUPUY. We concede that. That our business judgment is that
the establishment of the channel and getting enough homes to
launch the channel is what is driving this negotiation, thats correct.
Senator KERRY. And, if that is true, why is that not ultimately
an exercise of your market power? To the negation to this larger
public interest?
Mr. DUPUY. Because were increasing output, sir. We broadcast
all of our games. And again, I dont think this is a matter of every
game should be available
Senator KERRY. When you say increasing output,well, but
somebody drew an analogy in their testimony, I forget who it was,
it might have been Mr. Carey, about HBO and Sopranos, et
ceterathis is a different kind of content were talking about. Its
a different kind of product, a different kind of base. So, I dont
think that analogy works.
And, in the same way, when you say were trying to drive this
content, it seems to me, again, there ought to be a way for reasonable people to work out, without violating this investment interest,
which I respect, and the capital, the business approach to thisthe
long-term time, energy, investment, idea and so forth, but still
allow folks to get in on a reasonable economic basis, so you have
a broader consumer base. Which, ultimately, if youre looking down
the road, my hope would be that the channel is a raging success,
that in fact, you do have a better product, that DIRECTVs creativity and intervention here, and how they define the product
spurs the others to do the same, so that in the end, Major League
Baseball has a much larger fan base, with a much more diverse
portal.
Mr. DUPUY. We share your hope, across the board. And we believe the terms that were offered and have not been accepted, were
reasonable. We heard the Senator, we heard the fans, and we made
this package available to all bidders.
Senator KERRY. Well, I want to come back to explore that. Senator Specter is here, and I want to respect his time, and others.
But I do want to go back to get both Mr. Vogel and Mr. Jacobson
in on this discussion, about what might, in fact, work, and hope everybody doesnt get into this kind of fixed, hard-based descriptive
style, using adjectives that sort of push people away, rather than
bring people together.
Senator Specter?
STATEMENT OF HON. ARLEN SPECTER,
U.S. SENATOR FROM PENNSYLVANIA

Senator SPECTER. Thank you, Mr. Chairman. And thank you for
convening this hearing on this very important subject. The Judiciary Committee has had a look at it, and maybe with the merger
of the Commerce Committee, and the Judiciary Committee we can
do some good here.

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I have grave concerns about what is happening on paid television, generally. The MLB activity, and the issue of EXTRA INNINGS mirrors what the NFL has been doing with the Sunday
Ticket, and more recently with a Thursday/Saturday program. I believe that this is a movement along the line of very, very substantial charges for sports fans in America.
There is no doubt that America is addicted to NFL Football, and
Major League Baseball. Its a love affairI became involved in it
many years ago myself, when there was very little to do on the
plains of Kansas except look at the box scores. And now, every
Sunday when the Phillies and I are in town together, I go, and I
am a regular at the NFL, and I know my views are shared by millions of Americans.
We have a difficult situation, when we try to do anything about
what Major League Baseball is doing because of the antitrust exemption, which has been judicially created. Congress has flirted
with the idea from time to time of conditioning it, or changing it,
but we have not been able to do that.
But I think, Senator Kerry is on the right line, what he has written to the FCC, you have a proposed sale of DIRECTV to Liberty,
there is a potential involvement by the Department of Justice on
the antitrust implications, so were not entirely powerless, but
what we would like to see happen is that the parties on their own
would work out reasonable arrangements to make EXTRA INNINGS available to more fans.
And, I know that there has been the suggestion that the offer
has been made to other potential carriers, and its been rejected,
and they have a few more days to take up the offer. But, the issue
turnsas I understand iton the requirement that it be subscribed to, in Comcasts case for example, and I have an extra special interest in Comcast, which is Pennsylvania-based. For obvious
reasons, we would have to put a charge on too many of Comcasts
subscribers.
I note in the press, Senator Kerry, you have made a comment
about not having seen the contract, and raised a question as to
whether we have a right to, but I think perhaps we might be a little bit more assertive there, and examine it. And see what the details are on the refusal of Comcast and Warner and others, and the
others in the combine was to undertake.
But, this is something I would hope that Major League Baseball
would work out on its own, and would find a way to satisfy other
carriers so that more baseball fans can see it. Once the season
starts, there are going to be a lot of people who understand what
theyre not saying. Right now, they dont really know it, because
there are not too many people who are concerned about what goes
on in Russell 253. But when they see things happening in Major
League Baseball parks around the country, and cant watch it on
television, theres going to be a tremendous reaction. And when the
fans react, Congress may react. And if Congress reacts, you may
be well-advised to act before we do. Thank you, Mr. Chairman.
Senator KERRY. Thank you, Senator Specter, very much. I know
youve been involved in this, I remember when Senator Bill Bradley
was here, and we had a round on the issue of the antitrust issues,

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and I certainly respect your involvement in this for a long period
of time. So, I appreciate you being here, and your leadership on it.
I have some more questions, but I think Ive sort of done my first
round, so let me come back, Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA

Senator KLOBUCHAR. Thank you, Senator Kerry, and thank you,

all of you, and I just want to explain a little my background and
interest in thisbesides adjusting Senator Lautenbergs microphonemy interest in this is that I grew up in a sports family, my
dad covered the Vikings and the Twins for the Minneapolis Star
Tribune for many, many years, has written a number of sports
books, and I grew up in the days of Calvin Griffin, and the Mets
Stadium, when the Twins were training in a park owned by the
Animal Rescue League.
And, Ive seen the evolution of professional sports, and actually
wrote a book on the building of the Metrodome, and the involvement of professional sports in that. It was my college essay at Yale,
and they tried selling it at the Dome next to the Twins caps and
the purple inflatable swords at the Vikings gamesit didnt do
that wellbut, its still actually used at colleges. And, part of my
interest in writing that book was to look at just the public interest
value of sports, and how its a shared interest of the citizens. And,
so when I look at this issue, thats where I come from on this.
And, as Professor Ross has pointed out, there are a lot of Twins
fans all over the countrylast year we had the MVP, the Cy Young
Award Winner, and the American League batting champion. And
so, Im assuming that millions of Americans only want to tune in
to watch the Twins. So, thats why Im interested in this issue.
So, my first question is, of you, Mr. Carey, and that is, how many
Americans cannot get access to DIRECTV, either because of the location of their home, or the building theyre in, or a building that
doesnt allow it?
Mr. CAREY. From a line of sight, essentially, it would be slightly
less than 2 percent. We run 112 plus percent of customers, so I
guess if you took the number of cable subscribersits obviously
not relevant to those EchoStar subscribers who have the same
issue in terms of line of sight, it would be the 200,000 or so cable
customers that may have a line of sight issue. It would be a number slightly less than 5,000 homes that subscribed to EXTRA INNINGS last year that could have a line of sight issue that would
prevent us providing the service.
We do provide the broadband access, so that every customer, obviously, can get it through broadband. But that would be the number of, again, fewer customersaround 5,000 cable customers out
of the ones that had it last year, that may have a line of sight
issue, or some landlord issue, although legally, landlords arent allowed to block satellite access.
Senator KLOBUCHAR. Does anyone want to add to that? Your perspective, Mr. Jacobson?
Mr. JACOBSON. I appreciate your interest in sports, Senator, I am
an EXTRA INNINGS customerI wasI live in Manhattan, I live
in an apartment building. Im not going to be able to see these

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games now, unless I want to huddle around my 4-inch computer
screen, and I really dont think thats much of a substitute for me,
or for our customers.
Im not sure where Mr. Careys statistics come from, I dont know
what the number is, quite frankly, what the exact number is. We
have gotten thousands of letters from concerned fans, asking us,
How am going to be able to see these games? Either because they
dont have sufficient line of sight, or they live in apartment buildings, or theyre just not predisposed to change.
I mean, there are a huge number of these customers who are getting other services today from cablewhether theyre getting
broadband service from cable or whether theyre getting telephone
service from cableso, it may not be a question of whether or not
they can switch. It may be a question of whether or not, legitimately, they want to switch. And if they dontbecause they dont
want to give up those servicesshould they have to sort of doubledown on costs? Should they now have to get DIRECTV and cable,
and only increase their costs? I dont think thats fair, I dont think
thats very consumer-friendly, and we literally have gotten thousands of requests from customers about this, who are very concerned, and theyre very angry.
Senator KLOBUCHAR. OK.
Mr. CAREY. Can I just clarify, the numberfrom years of experience, we track every sale, we know how many line of sight issues
we have, so it is 112 to 2 percent of our customers that order
DIRECTV that have a line of sight issue. So, its pretty mathematical to say, its about 5,000 customers out of the 200,000
EXTRA INNINGS
Senator KLOBUCHAR. Mr. Ross?
Mr. ROSS. I want to just chime in to say, I have no reason to
doubt Mr. Careys factual assertions, but there are a couple of
other facts that I think you need to take into account.
One is the number of apartment buildings, especially for seniors,
that will negotiate really attractive deals with one company or another. And if they happen to have negotiated a really good deal
where you get free cable as part of your rent, its economically impractical, because youre already paying the rent, to expect people
to get DISH or DIRECTV, even if its technologically possible to do
so.
Second, and I note your timing was good with Senator Nelson
coming into the room, because I know from personal experience
from relatives that are his constituents that there areas he well
knowsa lot of weather-related activities in Florida during the
summertime, and people who demand instant access, like for
sports, you have a serious problem with satellites, and you know,
theres just nothing human nature can do about a massive thunderstorm coming in to interfere with the satellite channel. And so
there are a variety of reasons why the number of people who, for
practical purposes, cant switch, is larger than the number who, for
technological reasons, cant switch, which was the initial part of
your question.
Mr. CAREY. I would say, of the 5,000
Senator KLOBUCHAR. If I could just go to another, one question,
that Im just trying to clarify here, and thats when I heard about

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the details on this, did iN DEMAND actually negotiate for exclusive rights, or not? Because I seem to hear different things from
different people, about what happened here.
Mr. JACOBSON. Well, I can answer that, Senator. We never did,
weve never negotiated for exclusive rights, we were asked to make
Major League Baseball whole in the event that DIRECTV decided
it no longer wanted to be at the negotiating table, which we agreed
to, but we were never interested in negotiating for exclusive rights.
Senator KLOBUCHAR. OK. Mr. DuPuy?
Mr. DUPUY. Thats a matter of semantics, Senator. What they
did was submit an offer that said, We will pay you X, if you have
no other distributors of the product. And had certain terms and
conditions attached to that.
Senator KLOBUCHAR. OK, my last question here is, just as we
look at how to resolve this, Id just like to hear, briefly, 30 seconds
from each of you, if you think that we should resolve this issue in
the context of a broader effort to address competition, the area
which is what weve heard from DIRECTV, or do you think we
should specifically focus on this.
Mr. Jacobson?
Mr. JACOBSON. You know, Id just like to come up with a solution, Senator. I think we posed a reasonable solution. To the extent
that this committee can help us bridge the gap, I think that that
would be terrific, but I think what we proposed, in light of the fact
that the baseball channel is not going to be launching for 2 years,
lets give the fans something today, lets not penalize them today
for something that may or may not happen 2 years from today, and
I think thats a fair compromise.
Senator KLOBUCHAR. Mr. Carey?
Mr. CAREY. They have the opportunity to offer this programming.
They dont like the financial terms of it. There are an array of programming agreements we have which I dont like the financial
terms of. We pay re-transmission rights to many broadcast stations, cable doesnt. We have onerous contracts that are much more
expensive than cablesI dont run down to Washington every
time, you know, we have a contract issue or a programming issue
or a cost issue and ask for it to be arbitrated or legislated. You
know, we deal with it, thats the marketplace. And at times, we
stepped up to an agreement, you know, we entered into the agreement in good faith, went through an honest process, we have taken
the risks, were the only ones today with a signed contract, were
on the hook for significant risks without knowing where that contract ends up.
Were taking the further risk of the uncertainty about exclusivity
and non-exclusivity, and the other parties simply dont like the
business terms. Quite frequently, I dont like the business terms,
but I deal with it in the marketplace. And I think, there has to be
a consistency with how these issues are dealt with.
Senator KLOBUCHAR. Mr. Vogel? Last one.
Senator KERRY. No, I was just going to say, we need that last
question. Go ahead, answer the
Mr. VOGEL. OK. Well, I think that, that is a much broader issue.
I think access to sports content is the fundamental issue, and

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Major League Baseball happens to be the example in front of us
today.
I think thatas I said in my testimonyit limits competition.
We came into the Major League Baseball EXTRA INNINGS package late. We added 50,000 customers, in three short years. Those
customers had the choice of cable, they had the choice of
DIRECTV, yet they made a choice to opt-in with EchoStar. Now,
thats being taken away from them. So, I think the broader issue
should be addressed by Congress.
Given that were only four short days away from opening day, I
tend to agree with Mr. Jacobson, that this channel doesnt launch
until 2009, and there should be a way that we can share in the
rights fees that DIRECTV has negotiated, and make Major League
Baseball whole on a per-subscriber basis, based on its carriage, and
move on and address the broader issue of access to sports rights,
and how that impacts competition.
Senator KLOBUCHAR. Thank you very much.
Senator KERRY. Thank you, Senator Klobuchar.
Let me just remind colleagues, were going to go around with a
7-minute round, and then well come back.
Senator Lautenberg?
Senator LAUTENBERG. Thanks, Mr. Chairman.
Do any of you have any idea about how much of TV-watching is
dedicated to sports?
Mr. CAREY. I dont have a figure off the top of my head.
Senator LAUTENBERG. Well, obviously the volume of interest in
sports is fantastic. I can think of nothing that crosses all kinds of
lines to attract people to watch things more than sportsfrom golf
to NASCAR.
Mr. DuPuy, do you worry about the loss of a body of interest in
baseball as we go through this exclusive arrangement? One of the
things that I can tell you in my office, that we get constant complaints about is the increasing cost of TV viewing. However that it
is purchased. So, I just wonder whether were in some ways going
to kill this golden goose.
In New Jersey, for instance, we had this very serious question
about what happened with the Rutgers Football game. That there
were going to be 1.6 million people, roughly, unable to get the
game. That had our phones ringing a lot.
But, through cooperation of the cable companies and the National Football League, we were able to sound out an agreement.
And theres not a more energetic population about sports than
those folks in New Jersey, our crowded little State. And why there
is so much indignation at the fact that New York wants to recover
the teams that we took from them, its outlandish.
[Laughter.]
Senator LAUTENBERG. If you look at the Nets and the Giants and
the Jets, some nerve.
[Laughter.]
Senator LAUTENBERG. Im sure that you with your sports interest, must have been watching when the YES Channel was being
discussed. And there was a question about whether or not, it could
be offered, and people wanted it very much, except when a very
small fee was going to accompany that watching. And there was a

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total lack of interest, I mean, down in the single digits, of those
who wanted to watch it and would pay for it.
And so, I think you have to be very careful, as I think Senator
Specter said it very directly, that eventually if it comes across this
desk enough, things will happen that you dont like.
And, Im not issuing a threat here, but I simply ask, Mr. DuPuy,
is there no fear that people will be deprived of seeing the games
if this exclusive arrangement continues as it is?
Mr. DUPUY. No, Senator, there are two answers to that. Number
one, I share your concern, you know, about future generations of
fans. In an ever-increasing environment of multiple entertainment
options, appealing to the next generation of fans is one of our critical objectives. And thats why we want to appeal to the broadest
array of fans with the broadest amount of programming we can,
which is why the launch of the Baseball Channel, in our business
judgment, is so critical.
And, while we dont want to inconvenience any fan who has had
a product, and wants to retain a product, to make the Baseball
Channel available to 15 million fans on its launch, and to ensure
that it will have a platform to appeal to 15 million fans, is trying
to address those very concerns.
Second, there are alternatives. This is not that fans cant watch
the games. They can switch to DIRECTV, or they can watch the
games online. It may not be their desired alternative, that may not
be their desired platform, but they can still watch them.
Third, we hope that iN DEMAND and DISH do, in fact, step up
and continue the arrangement. So, yes, we share your concern
about not alienating any fan.
Senator LAUTENBERG. Well, you say they can view it online, but
is that an adequate substitute?
Mr. DUPUY. We televise all of our games through broadband, and
in fact, more homes have access to broadband today, than have access to digital TV. So, its available to more, and the quality of the
monitors, the quality of the broadcast, weve increased the 700 mbs
this year, the quality of it is actually quite good. Its not, in most
homes, a 4-inch screen, its a much bigger monitor than that.
Senator LAUTENBERG. Mr. Carey?
Mr. CAREY. Yes, I just wanted to add, I guess, two things.
One is, we have respected that, again, the majority of sports remains broadly availableSunday afternoon football, Sunday night
football, hundreds of baseball games, post-season, local sports
throughout sports. Really, the cornerstone of what really makes up,
the programming that sports fans are interested in, we have made
broadly available, we think it should be broadly available. What
weve talked about here, and what DIRECTV has pursued, is really
the premium packages to a narrow group of customers that pay a
premium price for an expanded level of coverage. We invest to enhance that coverage, but there is a great deal of sort of the core
sports that remains available.
Early on you talked about the situation in South New Jersey,
and I guess what I do want to clarify there is, weve given the cable
operators in that area the opportunity, to carry EXTRA INNINGS,
as well as the Philadelphia games. Weve never had the option, we
dont today have the option, its not in economic terms, weve never

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been given the right to offer the Philly games or the local Philadelphia sports to the local Philadelphia fans. Its not a right we have.
And I would argue, when you talk about sports interest, that is a
much more core issue in terms of what appeals to the broadest
public interest. Access to those local teams really are at the heart
of what most people follow day in, day out in their lives. And when
you talk about the passion of sports, it is generally, for their local
teams, for those people who live in those local markets.
Senator LAUTENBERG. I urge you all to try and do your best to
solve this problem. Because having it solved here is not a particularly good idea.
Thank you very much, Mr. Chairman.
Senator KERRY. Thank you, Senator Lautenberg.
Senator McCaskill?
STATEMENT OF HON. CLAIRE MCCASKILL,
U.S. SENATOR FROM MISSOURI

Senator MCCASKILL. Mr. Ross, Im curious about the antitrust

part of this. Clearly, the legislative history of the 1961 Act that, basically through Congress, kind of blew out the antitrust laws, clearly the legislative history said sponsored telecasting does not include
subscription television. And, I know there was a lawsuit, the Shaw
case, that was settled. Now, Im trying to figure out if the purpose
of that lawsuit was to make sure that someone could buy one team,
and not have to buy the whole darn thingIm trying to figure out
how that settlement helped them? Because it doesnt appear to me
that that settlement helped them.
Mr. ROSS. When I once served on a university committee, the
general counsel reminded me before every meeting that he was the
lawyer, and I was the professor. You would have to ask the lawyers
why that case was settled on those terms.
If this was a hearing on the Justice Department settlement of
that caseit was a private suitI would have had a lot to say. It
did not accomplish the public interest orientation of most fans.
There were some fans who, for whatever reason, happened to prefer 1 week of NFL season, and not another week, and they benefited by that settlement, and the attorneys were rewarded in the
settlement, but that was not an effective settlement of the underlying issues in that case.
Major League Baseball has a lot more games, and there are a lot
more out-of-market games that are not available for broadcast on
the networks than would be the case of many fans who are out-ofmarket fans elsewhere, and so the needs are, and the antitrust
problems are even greater here.
Now, with regard to the antitrust issue, you of course, have the
question of the baseball exemption, is it still valid? And, if it is
valid, does it apply to this issue? Given that Flood v. Kuhn makes
absolutely clear that baseball is interstate commerce, this committee clearly has the authority to pass non-antitrust legislation
that simply regulates this industry, on an industry-specific basis.
It obviously has the authority to regulate some of the questions
that both sides have been complaining about here, about exclusivitywhether its the right of cable companies to exclude
DIRECTV from its programming, or vice versa. So, theres ample

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opportunity to legislate here, but there are a variety of issues that
could tie up private antitrust litigation for years, before consumers
will get a chance to benefit. Thus, although there might not be
some interesting litigation issues worth pursuing, this is clearly not
somethingunlike other areaswhere you and Senator Kerry can
just say, Go litigate this in court. That really isnt going to resolve the issue for sports fans in the next half decade.
Senator MCCASKILL. And there have been no signals, I assume,
from Justice that theyre interested in looking at exclusivity, as it
relates to sports marketing on subscription television?
Mr. ROSS. Not that I am aware of, and, no.
Senator MCCASKILL. I would ask both Mr. Vogel and Mr. Carey.
The problem Ive got with the exclusivity as it relates to your particular product is that, its very difficult for a consumer to go back
and forth. I dont even want to begin to tell you the saga of the decisionmaking of DIRECTV versus DISH in my house. You talk
about ugly, divorces are made of this stuff.
[Laughter.]
Senator MCCASKILL. You know, the NFL is a big deal to my husband and so is baseball, and Ive got to tell you the computer monitor will never make it in my household. Most of the people I know
who have the passion for sports that want to watch the number of
games that are now possible to watch because of our technology
and because of the use of our airwaves, whether theyre public or
whether theyre satellite. You know, online isnt going to get it unless we get to the point that is much less confusing than it is now
for the average consumer.
What Im worried about is that Im going to be sitting in this
committee hearing a couple of years from now and theres going to
be a merger proposed. The rational for the merger is going to be,
Well, if we just combined, if we just bought the other one, well,
then the whole problem of who gets exclusivity is going to go
away, and then we dont have any competition. I just would like
both of you to comment as to whether or not you envision, either
one of your companies coming before this committee with the rationale for merger, that Gosh, if we could just get together we
would solve that old baseball, that pesky NFL versus MLB problem.
Mr. CAREY. Can I, let me first address the
Mr. VOGEL. Since Chase has all the rights, he should comment
first.
[Laughter.]
Mr. VOGEL. Ill comment later.
Mr. CAREY. First
Senator MCCASKILL. By the way, I went with you and thats why
Im in so much trouble.
[Laughter.]
Mr. CAREY. Im trying to solve that problem.
Senator MCCASKILL. I made the choice and boy have I regretted
it. Every Sunday I have to hear it.
Mr. VOGEL. And thats why Im here. Im trying to solve that
problem for you.
Senator MCCASKILL. And by the way, he wanted me to switch
and I explained to him how expensive it would be.

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Mr. VOGEL. Thank you. I would agree, 33 percent increase.
Mr. CAREY. Everyones going to say, I hope youre a DIRECTV
customer. And we will try to take care of that.
Mr. VOGEL. A valued customer, Chase.
Mr. CAREY. You know, I, in all honesty, we do make changing a
very seamless process. There arent charges up front. And, actually
in many ways, to our chagrin, an awful lot of people, about 20 percent of our customers every year, and 20 percent of EchoStars, and
probably more of cables are changing services.
Senator MCCASKILL. If you think its seamless, I need to talk to
you.
Mr. CAREY. Well, we do
[Laughter.]
Mr. CAREY.we spend a lot of time on it, but you have an enormous number of homes. You probably have something in the neighborhood of 20 million homes today that every year are changing
their service provider. In many ways we wish people, once they
were put in place, wouldnt change and 20 percent of your customers are changing every year. And, its a different 20 percent.
There are a lot of customers moving around. There are a lot of offers out there, in many ways, to entice people to change. So, there
is, certainly, a great deal of change and we spend a lot of time to
make it as friendly as possible to make those changes happen. But,
the fact of the matter is, an enormous number of people are changing very frequently.
Senator MCCASKILL. You dont envision using this as an excuse
to merger?
Mr. CAREY. Were certainly not having any conversations today
about a merger.
Mr. VOGEL. Theyre selling Liberty. News Corp.s interest is
going over to Liberty.
But, Im glad to hear youre a consumer and youre making exactly the point I tried to make in my testimony, weve enjoyed access to this EXTRA INNINGS content for 3 years. We have expanded the market. This transaction now forces the consumer,
through no fault of their own, to make a change. And, there is a
difference in our price-point versus DIRECTVs price-point. We
didnt take a $5 rate increase on our core package this year, we
took a zero rate increase on our package this year.
And, this is about migrating customers from one platform to the
DIRECTV platform. Is it easy? You know, its a matter of degree.
It wouldnt be easy in my house. Its not easy in anybodys house,
best I can tell. But, the fact of the matter is, consumers had the
choice to purchase DISH, DIRECTV, or a cable operator. They had
the choice to get EXTRA INNINGS as part of that purchase decision. That choice is now being taken away, through no fault of
their own, and we dont see that as particularly fair.
And, thats why I said earlier, we think that all sports content
ought to be subject to a broader review in this particular forum,
and wed be happy to participate in that. But, we dont think forced
change by a content provider is in the best interest of consumers,
by any means.
Senator MCCASKILL. Thank you, Mr. Chairman.

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Senator KERRY. Thank you very much, Senator McCaskill, we
appreciate it.
Senator Nelson?
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA

Senator NELSON. Mr. Carey, DIRECTV apparently has exclusive

rights to both Pro Football and Major League Baseball. Are exclusive sports programmings deals the answer to the triple-play threat
from cable and other video providers?
Mr. CAREY. First, let me just clarify, right now that baseball actually still is in a place where it could be non-exclusive or exclusive, so its not decided. But, to answer the question, we have clearly pursued content, generally, as an area to differentiate ourselves.
In many ways, as we said, as the cable players do with the bundle,
with broadband, to use that as a way to differentiate themselves
and create offers for customers that make it punitive to choose
cable broadband without video. We have looked at content, we look
at other areasservice, content, technologyas areas to differentiate, but content is an area we are trying to differentiate. We invest significantly in original content, in interactive content, and
weve gotten things like the NFL.
Weve not just taken the rights, weve taken those rights and invested in creating new features and new enhancements. NASCAR
we just took this year. A level of NASCAR, the races themselves
remain on broadcast, on various broadly distributed providers. But,
weve taken the NASCAR rights that cable used to have. And,
when cable had it last year, it generated about 30,000 customers.
We took those rights, invested significantly, and I think there have
only been four or five races this year. We already have over
100,000 customers to our NASCAR package, because we created an
array of new exciting features to energize that.
So, we have looked at sports as a place that we can bring new
features, new enhancements, new energy, and new excitement that
really does differentiate us against our competitors who use other
tools. And youre right, cable would look at broadband, the
broadband bundle, as their primary vehicle today, certainly their
lead vehicle in the market for differentiating themselves.
Senator NELSON. Well, how do these agreements comport with
antitrust law, and other FCC regulations?
Mr. CAREY. Im not an antitrust expert, so Im not sure I can provide commentary on the antitrust aspects of it. We negotiated with
baseball, we negotiated with others. I mean, it was an open process
in baseball. All parties had an opportunity, we certainly had no
edge, we just had an interest. We had an interest, and a belief we
could do unique things with this package. And, we continued to
enter into an agreement that exists today that provides a non-exclusive or exclusive arrangement. So, we pursued it. We pursued
it in an open market, in a competitive marketplace. We did succeed
in reaching an agreement, and that agreement still provides for an
exclusive or non-exclusive option on the other players part.
Senator NELSON. Constituent X has their, they have the tripleplay. They have their Internet, they have their telephone, and they
have their television all coming in on one wire. Now, what am I

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to tell Constituent X, who lives in Fort Lauderdale, Florida and
they happen to move there from Boston. And, they want to watch
the Red Sox. What should I tell Constituent X?
Mr. CAREY. Well, I might suggest one solution to that would be,
if the cable companies offered broadband and telephony services in
a way that they could take another video provider, such as
DIRECTV, without being financially penalized. That would be a
much better market solution and a much more pro-competitive
market solution than in being able to say you have to bundle those
three things together and you get financially penalized if you want
to buy different video service with those other providers.
Senator NELSON. That person who has it, could they see the Boston Red Sox by watching it on their computer?
Mr. CAREY. Yes, they could.
Senator NELSON. And, how much would that cost?
Mr. CAREY. I think the cost is a little under $100.
Senator NELSON. OK. And, now Mr. Jacobson?
Mr. JACOBSON. Yes, Senator.
Senator NELSON. Whats wrong with that?
Mr. JACOBSON. Well, I dont think most people would consider
that a satisfactory solution, Senator. I dont think you were here
for the earlier part of when I was speaking about my own situation. I live in Manhattan, I come home, and I want to watch the
games on my television. I have a big plasma screen, and I want to
watch them on the television. I dont really care to watch it on my
laptop. And I dont
Senator NELSON. Can you hook up your laptop to your television
screen?
Mr. JACOBSON. You know, Senator, I barely can turn the TV on.
I mean, I
[Laughter.]
Mr. JACOBSON.you know, figuring out how to wire that together would be impossible for me, and I dont think that the
broadband solution is in anyway a satisfactory substitute. Now,
maybe if I was on the road and I was in a hotel room and I needed
to pick up a game, that might work, but, certainly not as an every
night proposition.
Senator NELSON. Well, let me ask you this. Now, some of your
cable companies, in your consortium, certainly have some exclusive
sports deals, as well. For example, Comcast has the exclusive right
to the Philadelphia Phillies, and Cox has the rights to some San
Diego Padres games. Many cable operators also have local news
channels that they do not make available to satellite providers,
such as DIRECTV and EchoStar. So, notwithstanding the FCCs
terrestrial exception that apparently allows you to not share this
programming, how is that fair to consumers?
Mr. JACOBSON. Well, you know, Senator, I run a programming
company. I dont work at a cable system and as far as the terrestrial exception, I think, you referred to, Im not at all familiar with
it. Its not the business that Im in. And, I dont mean to try and
duck your question. Really, its just not something I have any expertise in.
Senator NELSON. Mr. Chairman, I dont think Constituent X in
Fort Lauderdale, Florida is satisfied yet.

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Senator KERRY. Senator, iN DEMAND is sort of the middle person here marketing these things for a number of cables, so I accept
what Mr. Jacobson is saying on that, but I agree with you. I dont
think they are necessarily satisfied.
Were you finished?
Senator NELSON. No. Mr. Chairman, Im not, because I want to
pick that up. If you are a Phillies fan or a San Diego Padres fan,
you have an exclusive deal to show them. Can people in Philadelphia watch the Phillies if theyre not tuned in to that particular
channel?
Talk to me about that Mr. Ross, youre shaking your head, no.
Mr. ROSS. These are, Mr. Jacobsons employers, but this is not
within his duties, hence, the difficulty your question is posing for
him. They have these exclusive agreements, and you can only get
them on cable, and you can only get them if you buy a $35, $40
basic premium package. I must confess that hearing some of the
testimony here reminds me of Claude Raines in Casablanca, who
is shocked, shocked that there is bundling going on here.
Mr. Carey is outraged that the cable companies would bundle a
telephony programming and the Internet. And, yet, this whole
problem would be mitigated, although not eliminated, if you had
the option to subscribe to only sports programming. So, then for example, if Senator McCaskills staff is still here, Senator McCaskill
could have solved her problem by putting up a second dishmaybe
she wouldnt have liked that aesthetically, and then kept her DISH
Network for whatever purpose she wanted and then just gotten
Sunday Ticket from DIRECTV and paid them whatever price her
husband was willing to pay for thatwhich was probably a lot.
The problem is you cant do that today. You cant get the sports
programming, unless you also subscribe to some basic premium
package, which runs $25 to $45 a month. And, which means, that
if you want to get these competing packages, like the Philadelphia
person you were talking about, Senator Nelson, they would have to
get Comcast, $40 a month, ESPN, TBS, all those channels, plus the
Phillies, and then they would have to get DIRECTV for their outof-market games, and $40 a month, et cetera. And so, thats one of
the
Senator NELSON. Is that
Mr. VOGEL. Thats not accurate in our case. We provide those
packages
Senator NELSON. Hang on 1 second.
Mr. VOGEL.free of charge and a la carte.
Senator NELSON. Mr. Ross, in your opinion is that in the best interest of the consumer?
Mr. ROSS. I havent studied the issue of general bundling to
know. Among the many solutions to this problem, one of them
would be getting rid of bundling. Whether thats the better solution
as opposed to abolishing exclusivity, as opposed to getting rid of the
antitrust exemption, as opposed to Senator Kerry just inviting all
these people over to his house and locking them in a room until
they come out with a solution, I dont really know which one is the
best solution.
Mr. VOGEL. Can I just say
Senator NELSON. Mr. Vogel, you had a comment. Please.

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Mr. VOGEL. Im sorry. Yes, sir. In DISH Networks case, we dont
force a buy-through of a basic package to get access to incremental
content thats available a la carte. So, the model that Professor
Ross described is not our model at all. And, we can do that, and
I believe DIRECTV can as well, just by virtue of our technology
being digital and being able to address each individual receiver,
and each individual home, with whatever content that they wish to
purchase. We dont force a buy-through through the analog tier to
get access to additional content.
Mr. CAREY. Can I just say on the bundle, because its not a
shock, I mean, I recognize fully the bundle exists. I guess, my question is, if this is about the consumer which is a bigger issue? Having 20 plus million cable-bundled customers that really arent able
to make a video choice because theyre financially penalized if they
dont buy all three together or 20 million plus broadband customers
on the bundle or 200,000 customers that youre talking about the
EXTRA INNINGS. I think that is the question if theres an issue
here about customer choice.
Senator NELSON. Mr. DuPuy, did you and Bud Selig know that
you were going to really stir up a hornets nest when you negotiated this like this?
Mr. DUPUY. Senator, what we had hoped is that everyone would
participate so it would not have happened, but we were very concerned, as Ive mentioned before, about providing the maximum
amount of programming to the maximum amount of our fans, I
guess would be my best answer.
Senator NELSON. And, in your opinion, as a representative of
MLB, is that done with regard to your present arrangement?
Mr. DUPUY. We would prefer to have everyone opt in, you know,
as I again mentioned before, we dont want to inconvenience any
fan, but the launch of the channel with 15 million homes, we think
does service the great majority of fans, particularly when viewed
against the number of subscribers to the EXTRA INNINGS package, yes sir.
Senator NELSON. Since youve got the Baseball Channel coming
on in 2009, what do you think ought to be done in the meantime?
Mr. DUPUY. What I think ought to be done in the meantime is
that everyone ought to participate and that we ought to continue,
and everyone ought to agree to carry the channel and we ought to
participate, and go forward arm in arm.
Senator NELSON. Let the record show that Professor Ross was
vigorously shaking his head yes.
[Laughter.]
Senator KERRY. Thank you, Senator. The record will show that,
thanks to your observation.
Let me pick up here, if I may, and I thank everybody for engaging in this dialogue.
The Communications Act, as we have amended itand Ive sat
here through the years and done that, I guess a couple times
gives the general powers of the Commission, the Commission from
time to time as public convenience, interest, or necessity requires
shall have exclusive jurisdiction to regulate the provision of direct
to home satellite services. So, obviously all of you are sitting here
with a very real public interest component as to what might define

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that necessity or interest. I want to get back to the basics here, and
then also get specific a little bit and then we can wrap it up.
Currently, Mr. Carey, DIRECTV carries EXTRA INNINGS, correct?
Mr. CAREY. Correct.
Senator KERRY. Currently, Mr. Vogel, DISH carries EXTRA INNINGS, correct?
Mr. VOGEL. That is correct.
Senator KERRY. Currently, Mr. Jacobson, iN DEMAND offers
through its represented groupCox, Time Warner et cetera
EXTRA INNINGS, correct?
Mr. JACOBSON. That is correct, Senator.
Senator KERRY. So, everyone sitting at this table is in the current state of EXTRA INNINGS availability, including, obviously,
Major League Baseball because youre whats provided. If this deal
goes through in 4 days as its currently constructed, half that table
gets wiped out. They no longer offer it, it comes down to you, and
its basically an exclusive deal. So, we go from your universe, how
many people?
Mr. JACOBSON. Last season, we distributed EXTRA INNINGS to
about 25 million digital cable customers.
Senator KERRY. Your universe, Mr. Vogel?
Mr. VOGEL. Thirteen million digital cable customers.
Senator KERRY. Thirteen and twenty-five.
Mr. VOGEL. I would say digital satellite customers, excuse me.
[Laughter.]
Senator KERRY. Let the record show that Mr. Carey is smiling.
We have them coming together here folks.
[Laughter.]
Senator KERRY. Mr. Carey, your universe, 15 million?
Mr. CAREY. Sixteen million.
Senator KERRY. Sixteen million. So, were taking 25 and 15, 13
and saying youve got to switch, if you want to continue, youve got
to change if you want to get it, or youre out. Now, its not that
many people getting it, I understand. Were now in a universe that
is a much smaller number of people whove chosen to do it.
I dont know, maybe that is because of this fee and people dont
want to do it. Maybe it would be smarter to offer it for less, and
have more people do it and then more people would go to the ballpark et cetera, and so forth and so on. I certainly run into an awful
lot of people that are getting fed up, on some level, with professional sports in general because of costs, I mean, you hear this everywhere. And, they switch into college. Its happening, Im not
going to name, but certain sports, I think, are having greater problems with that than others. But, Id be concerned about it, if I were
an owner. And, particularly, I think, we should be aware of how
people are treated as we go forward.
What concerns me is putting this public interest on the table.
Obviously, you all understand making a deal and I understand and
I think everybody at this table and outside understands that
DIRECTV saw an opportunity and it took it. It made an offer, its
been creative, and its got a concept, a vision of how it wants to
offer this, and theyre trying to go down that road. So, were trying

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55
to mix and match the public interest with a legitimate business interest here.
Now, what I dont understand is why, on a two-year basis, which
is approximately what it would bethats what it would be, I
guessit wouldnt be reasonable to continue the status quo if you
cant come to an agreement in the next four days? That way you
dont drive people into having to switch, and being angry, and
maybe losing some of them altogether, with the proviso that at the
end of that period of time, when the channel comes on, you have
the full option, Mr. DuPuy, of taking them on or putting them off.
If they meet the deal, fine. If they dont, theyre not there.
Whats the matter with that interim period to sort this out?
Mr. DUPUY. Well, as I tried to explain before, Senator, we have
engaged in those discussions with all three of these parties for almost a year now. And, there has been no agreement to meet the
price allocation either. The formula that was proposed by iN DEMAND was not the formula that we had
Senator KERRY. I understand that.
Mr. DUPUY.proposed.
Senator KERRY. Lets talk about that for a minute.
Mr. DUPUY. Yes, sir.
Senator KERRY. Currently, the EXTRA INNINGS deal is youre
going to carry it for 7 years, $100 million annually, correct?
Mr. DUPUY. It starts lower than that, but thats the average annual value, yes, sir.
Senator KERRY. They have to carry your channel?
Mr. DUPUY. Yes, sir.
Senator KERRY. Your channel has to reach 80 percent of subscribers, and it must be carried on the basic tier, correct?
Mr. DUPUY. Yes, sir.
Senator KERRY. And, DIRECTV gets a 20 percent equity in the
deal?
Mr. DUPUY. Yes, sir.
Senator KERRY. In the channel?
Mr. DUPUY. In the channel.
Senator KERRY. Now, the terms that were made available to the
others did not include the equity, and it had a per-subscriber license fee that matches DIRECTV, but theyre required to carry a
match to 80 percent of their subscribers
Mr. DUPUY. Yes, sir.
Senator KERRY.correct? Now
Mr. DUPUY. The digital subscribers only.
Senator KERRY. Right. And they dont get an equity in the deal?
Mr. DUPUY. Which would be about 40 percent of their total,
versus the 80 percent that Mr. Carey has agreed to carry.
Senator KERRY. OK. Now, as I understand it, cable objects to
how that is going to be divided between the two, I mean, their objection is that it requires them to calculate their percentage of contributions based on the overall share of the digital universe. And,
that presents them with two problems, doesnt it?
Problem number one is that they would have to use all of their
digital cable subscribers in calculating that fee, which means ultimately, because of the way they grow, that they would wind up
paying a disproportionate share of the fee, wouldnt they?

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Mr. DUPUY. There are two different concepts here. How the fee
for the EXTRA INNINGS package is allocated, and what percentage of homes, digital homes are committed to the Baseball Channel. And, your first description was about the latter and the allocation issue, I think, is about the former.
The allocation issue that we believe is appropriate, is based on
the number of homes to which they have this product available.
Otherwise, its a disincentive for going out and obtaining customers. For example, iN DEMAND could sell one subscription to
the EXTRA INNINGS package and DIRECTV could sell a million
subscriptions or 999,000 subscriptions and iN DEMAND would
only pay a fraction, a very tiny fraction, of the overall amount because they didnt market it as well and they defeat the exclusive.
What seems to us to be fair is, you have 25 million homes that
you have available to sell it, they have 16 million homes that they
have available to sell it to. If you each sell it and market it to the
same number of people, you will each pay the proportionate
amount. If you do a better job in marketing it, youll get a better
deal on it because youll
Senator KERRY. Whats the matter with that, Mr. Jacobson?
Mr. JACOBSON. Well, the way effectively what Mr. DuPuy is describing is that we would be responsibleassuming EchoStar came
infor 51 percent of the costs for 39 percent of the subscribers.
That is, we would effectively be paying 30 percent more.
Now, if Mr. Vogel doesnt do a deal with them then were going
to pay even more. Were going to pay about 62, 63 percent of the
cost for about 40 plus percent of the subscribers for about a 50 percent hike in price. I dont know that I agree with what Mr. DuPuy
said. I think the same rules would apply if DIRECTV subscriber
base suddenly dropped and ours went up, then I guess wed pay
more also. But, the way cable operators pay and the way that cable
networks have always paid is on a per-subscriber basis, and we
think that that is fair.
Senator KERRY. So, thats really where the divide is right now?
Mr. JACOBSON. I think thats part of it, and I also think, what
you pointed out about the equity or the value transfer is another
part of it. Because I think that is something that is potentially
worth hundreds of millions of dollars which has been made available to one distributor, but has not been made available to another.
Senator KERRY. Sois that the major sticking point for both
cable and EchoStar? Is there a requirement to carry the baseball
on the expanded basic tier?
Mr. VOGEL. Weve
Senator KERRY. If that provision were dropped, and Im not sure
it could be, but if that provision were dropped, would you take,
would iN DEMAND take the deal?
Mr. JACOBSON. Well, I think we still have
Senator KERRY. Even though you have to pay more proportionally for the EXTRA INNINGS?
Mr. JACOBSON. And, we rectified the equity, or the value in the
channel? I think if that were the proposition then, you know, wed
certainly consider that. I still dont think it would be fair, Senator,
because I think Id be paying a disproportionate share of my costs,
but I would certainly consider that.

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Senator KERRY. Let me ask DIRECTV. Mr. Carey, is the only
reason youre paying that $100 million, is that price arrived at
based on the exclusivity?
Mr. CAREY. The $100 million is an exclusive price. And clearly
if it was non-exclusive
Senator KERRY. If I could just intervene for 1 second.
Mr. DuPuy, when you mentioned earlier that Mr. Jacobson had
offered a deal in which theyd pay X, if they were the only ones.
Was there also an offer of Y, if they werent?
Mr. DUPUY. I dont know if it was in that. They have made a
non-exclusive offer, yes.
Senator KERRY. OK, they have. Whats the sticking point on the
non-exclusive offer?
Mr. DUPUY. The sticking point was
Senator KERRY. Is on the subscriber distribution?
Mr. DUPUY. We wanted carriage
Senator KERRY. Its the subscriber distribution.
Yes, Mr. Ross?
Mr. ROSS. One interesting question that the Committee ought to
think about here is why Mr. Carey, who will have the exclusive
rights if the other offers arent met, doesnt then turn around and
resell the rights I dont know if he could do it legally, but I dont
know why Major League Baseball would object to re-selling to Mr.
Vogel and Mr. Jacobson for 50 cents less than DIRECTV would collect. So, basically, his rivals would not be making any money on
the deal, hes making all the money on the deal. And, if he says,
Im not interested in doing that, for the Committee to carefully
examine why. Hes obviously interested in getting some consumers
over to him. But, there are obviously going to be some Major
League Baseball fans who, for whatever reason, arent going to
switch to DIRECTV. Why would he forego the opportunity if hes
going to sell Major League Baseball EXTRA INNINGS on
DIRECTV for $200, to not resell it to Mr. Vogel for $199.50, and
make all the money on the consumers who forwhatever other
reasondont want to switch to DIRECTV and that way, yes Mr.
Vogel pays more, Mr. Carey gets more, but consumers get the
whole product.
Mr. CAREY. I guess, quite simply today we dont have the rights.
I mean, were not a rights broker. We buy rights for us to use, I
guess we could engage that way, but have not, were not in the
business of buying rights to resell to our competitors. I mean,
again, its certainly something good for business that we could contemplate, but were not in the rights-brokering business, we acquire rights and usually rights holders are not that enthused in
having a third-party represent their rights.
Senator KERRY. That brings us to the nub of this issue. That
really brings us right into the core of it, which is, you buy rights
so that your competitors dont have them. Thats what you just
said.
Mr. CAREY. Yes, we buy rights for ourselves.
Senator KERRY. Correct. You buy rights for yourself and youre
not in the business of giving your competitors the rights you have.
Mr. CAREY. We dont sell rights as we dont buy rights from our
competitors, or sell rights.

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Senator KERRY. I understand that.
Mr. CAREY. The rights holders, typically, and in this case included, the rights holders have theweve given the ability for the
rights holder to offer those rights to third parties, but its the
rights holder that are offering the rights, not us offering the rights.
Senator KERRY. But, the way people are interpreting this back
and forth, and the way this negotiation has goneand, you know,
Ive been privy to some negotiations over the course of a lifetime,
obviously yours here, these accusations that somebodys not negotiating in good faith, somebodys not really negotiating, you make an
offer thats not a real offer, you go back and forthand in the end,
its the bottom line that drives it. We all understand that.
But, here theres a different bottom line. I mean, thats why were
having a hearing here. Thats why were in this Commerce Committee room. Its a different bottom line, its not just the economic
issue. Its the public interest, its the sports interest, its baseballs
interest, thats what it means. And its hard to marry the deeply
felt, and I think, earnest belief of the Commissioner, that this is
a social institution with enormous historical and cultural ties to the
country and a larger public interest with the economic interest
thats represented here.
Youre driving for the best business deal you can get. I understand that. That may not be the best deal for baseball, frankly, or
for the fan. And, sometimes there are compromises. And, the question here is whether or not you can find one. I mean, frankly, you
talk about a seamless transition. Thats not a seamless transition
for a consumer whose telephone and TV and Internet are all provided by one entity. Its not seamless.
And, it is not a realistic assessment. I mean, you have to think
about how people use their computers. You have a laptop, you have
a workstation in your home. You go to your workstation, you take
your laptop, and you have anything from a 14-inch, 17-inch, who
knows. Few people walk aroundor lug around, because you cant
travel with themtheyre too heavy. So, you know, the practical reality is you have a small screen, you put it on your laptop or table
in front of you and you do some work. That is not a destination
baseball game watching event.
In a world where people are increasingly enticed to go out and
get their big plasma screen and their big LCD and thats the way
you want to watch it, with surround sound and maybe some friends
sitting around, and whatever. So, its not a realistic offer to say,
Gosh, its going to be available on a dot com. The reality is that
whats seamless is letting people have the opportunity to be able
to share what they have today, thats seamless. But, also, to have
a fair price paid by those who dont have the deal.
I respect your approach to this, et cetera, and I understand the
drive of Major League Baseball to get the channel out there, which
I think could be a great thing. I understand that. It would be a better thing if it was available to a whole bunch more people. Thats
how its best. And, thats how the public interest is going to best
be served here.
Thats truly seamless, thats the easiest thing for the fan. If
youve got EchoStar, Wow, I can get Major League Baseball
EXTRA INNINGS here. Its going to cost me a little more, heres

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what I pay. And the same thing, you know, on the other channel
and you guys have the opportunity, because youre developing the
station to be more creative and do whatever youre going to do and
offer it in a different way. And, you can offer your extra package,
I think NASCAR, you know, you can get NASCAR on Speed and
you can go watch it, but you can also buy in and get your four car
location and your pit crew and all that other stuff and its fun. So,
people pay more for that.
So, there are all kinds of ways to skin this cat. What Id like to
see, if its possible, and I know there are only 4 days. But, it seems
to me that maybe we can get some extra innings out of Major
League Baseball here to say, Lets sort of hold the status quo for
a period of time, with fair payment. And, youve got to work this
outand Id love to mediate it, but Im not in the business of doing
that. Im confident you can get some arrangement that adequately
reflects the subscriber base and the appropriate level of eyes
watching it to pay. Which is what ought to be measured fundamentally. And, have easy access for everybody to be able to try and get
at this.
Now, you know, I hope that you can do that. I think that in the
end, I truly understand in the business point of view, its a good
deal for DIRECTV. I understand why youd want it all by yourself
and Im sure youd make a terrific offering with it. I understand
why its good for you folks in the long run, but I dont think its
as good as having it on every one of those channels.
And, I think, Mr. DuPuy, you said, I dont remember where the
words were. I think you said a little while ago, the broadest public
interest, the broadest base is what you want. But, by definition,
thats multiples of millions of more people and I urge you to try to,
you know, find a way to see if you cant skin that cat a different
way.
You want to comment on that?
Mr. DUPUY. Two brief comments, Senator. One, isin your comment about bottom line, this was not about maximizing profit for
us. Frankly, we believe that if we had just gone out and cut a nonexclusive deal, irrespective of the Baseball Channel, we probably
could have done better, short-term, in a short-term deal, economically, than what we currently have.
What this was about was serving the maximum number of our
fans with the maximum amount of programming, and thats what
drove these negotiations. So, I appreciate your concern, and we
would
Senator KERRY. But, by definition, how can that be the maximum
number of fans?
Mr. DUPUY. Because
Senator KERRY. If, on day one, if in 4 days, 250,000 people are
going to wake up, and they cant get it.
Mr. DUPUY. Because in 2 years, 15 million will have access to
the Baseball Channel, which we are not assured without this deal.
Senator KERRY. Ill lay you odds, I bet you I could construct a
deal where you can get an assurance of a Baseball Channel, and
everybodys carrying it.
Mr. DUPUY. Well, the NBA would love that, the NFL would love
that, and we would love that, as well. And that was our objective

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here, was to make the maximum amount available, to the maximum number of fans, thats why we did it.
We hear your concerns, and our doors remain open, and we will
be happy to continue the dialogue with both iN DEMAND and
EchoStar.
Senator KERRY. Anybody, yes, Mr. Jacobson?
Mr. JACOBSON. I just want to add, Senator, as I mentioned earlier, we offered to carry the Baseball Channel in front of 15 million
customers, which is guaranteed carriage that Mr. DuPuy is talking
about, prior to the announcement of the DIRECTV deal. After they
announced the DIRECTV deal, and said wed have a right to
match, we matched DIRECTV customers, subscriber for subscriberso those are two, guaranteed opportunities for carriage of
the Baseball Channel, and the first time we never heard back, and
the second time we were rejected within an hour.
Now, we think that our offer today to try and figure out a solution for the fans next week, and put off for some time for discussion
of the Baseball Channel is fair, and its consumer-friendly, and as
you pointed out, its a seamless solution.
Senator KERRY. Well, when you say put off, let me in fairness,
I mean, if youre laying out your business plan, and youre proceeding forward, and you have to invest and you have to hire creative talent, and do what you have to do, you have to know where
youre going, right? So, from their point of view, they dont want
to just leave it out, hang it out there and put it off forever, it would
seem to me.
Mr. JACOBSON. Im not suggesting that it would be forever, Senator, Im happy to come up with a date and time, out in the future,
that at least gives the fans access to the games, but lets face it
the seasons starting next week. We were given 3 weeks to try and,
not only negotiate, but execute a very complicated transaction. I
have multiple partners, we have a lot of cable affiliates, its not just
my three owners, its a fairly sophisticated transaction, that evidently took Major League Baseball and DIRECTV some 6 months
to execute, and I was asked to do it in 3 weeks.
Senator KERRY. Well, Mr. DuPuy, whats the possibility, in your
judgment, of trying to keep the status quo for a period of weeks
here, and sit down in good faith and see if we cant get folks together and, you know, pull off an agreement that meets
everybodys needs?
Mr. DUPUY. Weve tried to do that for 9 months, Senator. We
have 4 days before our season starts. Mr. Carey has to launch his
product.
Well continue the discussion. We will make our best efforts to
continue the discussion, bring it to resolution as quickly as possible. Our goal is to, again, wed like everybody to opt in. If we can
figure out a way to do that
Senator KERRY. He can launch his product without launching it
exclusively, cant he?
Mr. DUPUY. Well, someone has to sell it, and decide whos going
to pay what to whom.
Senator KERRY. I understand, butif you did that, it seems to
me that in the next few daysit shouldnt be impossible to figure
out a fundamental fee basis, I mean, you know whats been in front

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of you for months, you know how this thing is going to divide, essentially, over those 9 months youve been working that.
Im sorry, Mr. Carey?
Mr. CAREY. Yes, I just, I do want to add, on our behalf, you
know, we are not indifferent to time, here. I mean, we are the one
party today under contract, on an exclusive or a non-exclusivewe
provided the two optionswe would market it differently, depending upon how it is arrived at.
Senator KERRY. I understand.
Mr. CAREY. We certainly do have concerns, this is a legitimate
process to get to a legitimate end by everybody here, this is a process that has been, seems to have been, more focused on press releases than meetings to negotiate.
We, ultimately, entered intoIll go back to what I saidan honest process to end up with these rights, went the extra mile of accommodating a non-exclusive and an exclusive arrangement. This
is about economics, because thatsthey dont like the economic
terms. And, essentially, the noise has been about economics. Yes,
weve taken a risk, weve stepped up, we have a binding contract
that has left us at risk on what, on two different fronts, and we
expect that risk weve taken to be respected, it would be respected
in any other process any of us engaged in, in terms of succeeding
to arrive at an agreement, you know, that we stepped up to
achieve, weve provided certain rights in here, but we dont, reallythis processit is important to us this is not an open-ended
process. You know, over the last few weeks, Ive
Senator KERRY. Well, thats fair. But, let me sort of conclude it
by saying, I think the process has been drivenyou talk about
press releases and this and that, and you made a comment a little
while ago about, it shouldnt be necessary to come to Washington
in order to resolve a contract, and so forthI respect that.
Were not here because any party at this table came to us to intervene in a contract. Were here because constituentspeople we
represent and the public interestleaped up at us when we noticed
this deal, and people got in touch with us.
Mr. CAREY. I understand.
Senator KERRY. And, were here because it has, essentially, been
driven by the economic piece to the exclusion of a sufficient balance
of the public, broader public interest piece. And, I think, frankly,
the public relations piece, in terms of a leagues relationship with
its fan base, the people it represents. And, I think, the interest
here is, indeed, in having something truly seamless, and something
that works for the broadest fan base.
I also believe very deeply, that that is ultimately in the best interest of Major League Baseball. And, I think its possible to get
the best of both worlds here. I really believe that, if there were a
good faith effort to do that.
So, maybe in the next 4 daysis there a plan for anybody to be
sitting down and talking? Is there any meeting thats scheduled?
Or, is this clock just going to run, and thats where we are?
Mr. JACOBSON. I hope it doesnt. Im, you know, wed be happy
to meet, and wed be happy to try and come up with a solution. I
thought we tried to address

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Senator KERRY. Well, has anybody sat down face to face, Mr.
DuPuy? Has there been ahas this been just a paper transaction?
Mr. DUPUY. There were two face-to-face meetings on March 9th.
Senator KERRY. Whats the possibility of having a face-to-face
meeting in the next couple of days? Next 24 or 48 hours? To see
if you could work out something on this, or not? Possible?
Mr. DUPUY. Were willing to meet, yes sir.
Mr. JACOBSON. Were certainly willing to meet, Senator. Absolutely. And were willing to try
Senator KERRY. Everybodys willing to meet, but when youve set
the times in the next 4 days, will you actually arrive at a time?
And
Mr. JACOBSON. We will set a time to meet.
Senator KERRY. All right. I appreciate that. I think the fans
would appreciate it if you all could work something out that makes
sense here. And in the long run, we all understandyouve got to
balance a number of different interests here, but I think it would
be great to see if you cant do that in a thoughtful, publicly spirited
way.
Thank you very much, we appreciate you coming today.
[Whereupon, at 12:13 p.m., the hearing was adjourned.]

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A P P E N D I X
PREPARED STATEMENT

OF

HON. DANIEL K. INOUYE, U.S. SENATOR

FROM

HAWAII

Today, the Committee will be examining the impact of exclusive sports programming contracts on sports fans. With the baseball season set to open in just a few
days, this is a very timely discussion.
The video programming industry is evolving quickly. The emergence of new distribution platforms has increased competition among cable, satellite and other video
programming providers.
When it comes to sports programming, this evolution, in principle, translates into
new ways that fans can watch and follow the progress of our favorite teams. However, as more choices become available, concerns have arisen about the impact of
exclusive sports programming deals. We must watch this trend closely to ensure
that the interests and expectations of consumers are protected.
This brings us to todays hearing. Many sports fans are intensely loyal to their
home teams even when living a long distance away. In the case of my constituents
in Hawaii, they have no major league home team to follow. Instead, Hawaiians are
fans of many teams from all over the country. They want to cheer for their teams
like all fans, and they deserve fair access to out-of-market games. After all, for
them, their only choice is out-of-market games.
Sports programming deals that either overtly or effectively limit the availability
of such programming on competing video programs raise difficult questions about
whether all fans are getting fair access to their favorite major league sports events.
It is important that this committee keep a close watch on this situation, and makes
sure that the consumer does not lose out with exclusive sports programming agreements.
I would like to thank Senator Kerry for his leadership in this matter, and I look
forward to hearing from the witnesses assembled here today.

(63)

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