Final Judgment and Competitive Impact Statement:
Federal Register: January 31, 2011 (Volume 76, Number 20)
Notices
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From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DOCID:fr31ja11-130
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Vol. 76
Monday,
No. 20
January 31, 2011
Part III
Department of Justice
Antitrust Division
United States, et al. v. Comcast Corp., et al.; Proposed Final Judgment and Competitive Impact Statement; Notice
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DEPARTMENT OF JUSTICE
Antitrust Division
United States, et al. v. Comcast Corp., et al.; Proposed Final
Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a proposed Final
Judgment, Stipulation and Order, and Competitive Impact Statement have been filed with the United States District Court for the District of
Columbia in United States of America, et al. v. Comcast Corp., et al.,
Civil Action No. 1:11-cv-00106. On January 18, 2011, the United States filed a Complaint alleging that the proposed joint venture between
Comcast Corp. and General Electric Co., which would give Comcast control over NBC Universal, Inc., would violate Section 7 of the
Clayton Act, 15 U.S.C. 18. The proposed Final Judgment, filed simultaneously with the Complaint, requires the defendants to license the joint venture's content to online video programming distributors under certain conditions, relinquish its management rights in Hulu,
LLC, and subject itself to Open Internet and anti-retaliation provisions, along with other requirements.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection at the Department of
Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth
Street, NW., Suite 1010, Washington, DC 20530 (telephone: 202-514- 2481); on the Department of Justice's Web site at http://www.usdoj.gov/ atr; and at the Office of the Clerk of the United States District Court for the District of Columbia. Copies of these materials may be obtained from the Antitrust Division upon request and payment of the copying fee set by Department of Justice regulations.
Public comment is invited within sixty (60) days of the date of this notice. Such comments, and responses thereto, will be published in the Federal Register and filed with the Court. Comments should be directed to Nancy Goodman, Chief, Telecommunications & Media
Enforcement Section, Antitrust Division, Department of Justice, 450
Fifth Street, NW., Suite 7000, Washington, DC 20530 (telephone: 202- 514-5621).
Patricia A. Brink,
Director of Civil Enforcement.
United States District Court for the District of Columbia
United States of America, United States Department of Justice,
Antitrust Division, 450 Fifth Street, NW., Suite 7000, Washington,
DC 20530; State of California, Office of the Attorney General, CSB
No. 184162, 300 South Spring Street, Suite 1702, Los Angeles, CA 90013; State of Florida, Antitrust Division, PL-01, The Capitol,
Tallahassee, FL 32399-1050; State of Missouri, Missouri Attorney
General's Office, P.O. Box 899, Jefferson City, MO 65109; State of
Texas, Office of the Attorney General, 300 W. 15th Street, 7th
Floor, Austin, TX 78701; and State of Washington, Office of the
Attorney General of Washington, 800 Fifth Avenue, Suite 2000,
Seattle, WA 98104-3188, Plaintiffs, v. Comcast Corp., 1 Comcast
Center, Philadelphia, PA 19103; General Electric Co., 3135 Easton
Turnpike, Fairfield, CT 06828; and NBC Universal, Inc., 30
Rockefeller Plaza, New York, NY 10112, Defendants.
Case: 1:11-cv-00106.
Assigned to: Leon, Richard J.
Assign. Date: 1/18/2011.
Description: Antitrust.
Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, and the States of California,
Florida, Missouri, Texas, and Washington, acting under the direction of their respective Attorneys General or other authorized officials
(``Plaintiff States'') (collectively, ``Plaintiffs''), bring this civil action pursuant to the antitrust laws of the United States to permanently enjoin a proposed joint venture (``JV'') and related transactions between Comcast Corporation (``Comcast'') and General
Electric Company (``GE'') that would allow Comcast, the largest cable company in the United States, to control some of the most popular video programming among consumers, including the NBC Television Network
(``NBC broadcast network'') and the cable networks of NBC Universal,
Inc. (``NBCU''). If the JV proceeds, tens of millions of U.S. consumers will pay higher prices for video programming distribution services, receive lower-quality services, and enjoy fewer benefits from innovation. To prevent this harm, the United States and the Plaintiff
States allege as follows:
I. Introduction and Background 1. This case is about how, when, from whom, and at what price the vast majority of American consumers will receive and view television and movie content. Increasingly, consumers are demanding new ways of viewing their favorite television shows and movies at times convenient to them and on devices of their own choosing. Consumers also are demanding alternatives to high monthly prices charged by cable providers, such as Comcast, for hundreds of channels of programming that many of them neither desire nor watch. 2. Today, consumers buy video programming services only from the distributors serving their local areas. Incumbent cable companies continue to serve a majority of customers, offering services consisting of multiple channels of linear or scheduled programming. Beginning in the mid-1990s, cable companies first faced competition from the direct broadcast satellite (``DBS'') providers. More recently, firms that traditionally offered only voice telephony services--the telephone companies or ``telcos,'' such as AT&T and Verizon--have emerged as competitors. The video programming offerings of these competitors are similar to the cable incumbents' programming packages, and their increased competition has pushed cable companies to offer new features, including additional channels, digital transmission, video-on-demand
(``VOD'') offerings, and high-definition (``HD'') picture quality. 3. Most recently, online video programming distributors (``OVDs'') have begun to provide professional video programming to consumers over the Internet. This programming can be viewed at any time, on a variety of devices, wherever the consumer has high-speed access to the
Internet. Cable companies, DBS providers, and telcos have responded to this entry with further innovation, including expanding their VOD offerings and allowing their subscribers to view programming over the
Internet under certain conditions. 4. Through the JV, Comcast seeks to gain control of NBCU's programming, a potent tool that would allow it to disadvantage its traditional video programming distribution competitors, such as cable,
DBS, and the telcos, and curb nascent OVD competition by denying access to, or raising the cost of, this important content. If Comcast is allowed to exercise control over this vital programming, innovation in the market for video programming distribution will be diminished, and consumers will pay higher prices for programming and face fewer choices. 5. Attractive content is vital to video programming distribution.
Today, consumers subscribe to traditional video programming distributors in order to view their favorite programs (scheduled
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or on demand), discover new shows and networks, view live sports and news, and watch old and newly available movies. Distributors compete for viewers by marketing the rich array of programming and other features available on their services. This marketing often promotes programming that is exclusive to the distributor or highlights the distributor's rivals' lack of specific programming or features. 6. NBCU content, especially the NBC broadcast network, is important to consumers and video programming distributors' ability to attract and retain customers. Programming is often at the center of disputes between subscription video programming distributors and broadcast and cable network owners. The public outcry when certain programming is unavailable, even temporarily, underscores the damage that can occur when a video distributor loses access to valuable programming. The JV will give Comcast control over access to valuable content, and the terms on which its rivals can purchase it, including the possibility of denying them the programming entirely. 7. NBCU content is especially important to OVDs. NBCU has been an industry leader in making its content available over the Internet. If
OVDs cannot gain access to NBCU content, their ability to develop into stronger video programming distribution competitors will be impeded. 8. Comcast itself recognizes the importance of the NBC broadcast network, which it describes as an ``American icon.'' NBC broadcasts such highly rated programming as the Olympics, Sunday Night Football,
NBC Nightly News, The Office, 30 Rock, and The Today Show. NBCU also owns other important programming, including the USA Network, the number-one-rated cable channel; CNBC, the leading cable financial news network; other top-rated cable networks, such as Bravo and SyFy; and
The Weather Channel, in which it holds a significant stake and has management rights. 9. Comcast faces little video programming distribution competition in many of the areas it serves. Entry into traditional video programming distribution is expensive, and new entry is unlikely in most areas. OVDs' Internet-based offerings are likely the best hope for additional video programming distribution competition in Comcast's cable franchise areas. 10. Thus, the United States and the Plaintiff States ask this Court to enjoin the proposed JV permanently.
II. Jurisdiction and Venue 11. The United States brings this action under Section 15 of the
Clayton Act, as amended, 15 U.S.C. 25, to prevent and restrain Comcast,
GE, and NBCU from violating Section 7 of the Clayton Act, 15 U.S.C. 18. 12. The Plaintiff States, by and through their respective Attorneys
General and other authorized officials, bring this action under Section 16 of the Clayton Act, 15 U.S.C. 26, to prevent and restrain Comcast,
GE, and NBCU from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
The Plaintiff States bring this action in their sovereign capacities and as parens patriae on behalf of the citizens, general welfare, and economy of each of the Plaintiff States. 13. In addition to distributing video programming, Comcast owns programming. Comcast and NBCU sell programming to distributors in the flow of interstate commerce. Comcast's and NBCU's activities in selling programming to distributors, as well as Comcast's activities in distributing video programming to consumers, substantially affect interstate commerce and commerce in each of the Plaintiff States. The
Court has subject-matter jurisdiction over this action and these defendants pursuant to Section 15 of the Clayton Act, as amended, 15
U.S.C. 25, and 28 U.S.C. 1331, 1337(a), and 1345. 14. Venue is proper in this District under Section 12 of the
Clayton Act, 15 U.S.C. 22, and 28 U.S.C. 1391(b)(1) and (c). Defendants
Comcast, GE, and NBCU transact business and are found within the
District of Columbia. Comcast, GE, and NBCU have submitted to personal jurisdiction in this District.
III. Defendants and the Proposed Joint Venture 15. Comcast is a Pennsylvania corporation headquartered in
Philadelphia, Pennsylvania. It is the largest video programming distributor in the nation, with approximately 23 million video subscribers. Comcast is also the largest high-speed Internet provider, with over 16 million subscribers for this service. Comcast wholly owns national cable programming networks, including E! Entertainment, G4,
Golf, Style, and Versus, and has partial interests in Current Media,
MLB Network, NHL Network, PBS KIDS Sprout, Retirement Living
Television, and TV One. In addition, Comcast has controlling interests in the following regional sports networks (``RSNs''): Comcast SportsNet
(``CSN'') Bay Area, CSN California, CSN Mid-Atlantic, CSN New England,
CSN Northwest, CSN Philadelphia, CSN Southeast, and CSN Southwest; and partial interests in three other RSNs: CSN Chicago, SportsNet New York, and The Mtn. Comcast also owns digital properties such as
DailyCandy.com, Fandango.com, and Fancast, its online video Web site.
In 2009, Comcast reported total revenues of $36 billion. Over 94 percent of Comcast's revenues, or $34 billion, were derived from its cable business, including $19 billion from video services, $8 billion from high-speed Internet services, and $1.4 billion from local advertising on Comcast's cable systems. In contrast, Comcast's cable programming networks earned only about $1.5 billion in revenues from advertising and fees collected from video programming distributors. 16. GE is a New York corporation with its principal place of business in Fairfield, Connecticut. GE is a global infrastructure, finance, and media company. GE owns 88 percent of NBCU, a Delaware corporation, with its headquarters in New York, New York. NBCU is principally involved in the production, packaging, and marketing of news, sports, and entertainment programming. NBCU wholly owns the NBC and Telemundo broadcast networks, as well as ten local NBC owned and operated television stations (``O&Os''), 16 Telemundo O&Os, and one independent Spanish-language television station. Seven of the NBC O&Os are located in areas in which Comcast has incumbent cable systems--
Chicago, Hartford/New Haven, Miami, New York, Philadelphia, San
Francisco, and Washington, DC. In addition, NBCU wholly owns national cable programming networks--Bravo, Chiller, CNBC, CNBC World, MSNBC, mun2, Oxygen, Sleuth, SyFy, and the USA Network--and partially owns A&E
Television Networks (including the Biography, History, and Lifetime cable networks), The Weather Channel, and ShopNBC. 17. NBCU also owns Universal Pictures, Focus Films, and Universal
Studios, which produce films for theatrical and digital video disk
(``DVD'') release, as well as content for NBCU's and other companies' broadcast and cable programming networks. NBCU produces approximately three-quarters of the original, primetime programming shown on the NBC broadcast network and the USA cable network--NBCU's two highest-rated networks. In addition to its programming-related assets, NBCU owns several theme parks and digital properties, such as iVillage.com.
Finally, NBCU is a founding partner and
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32 percent owner of Hulu, LLC, an OVD. In 2009, NBCU had total revenues of $15.4 billion. 18. On December 3, 2009, Comcast, GE, NBCU, and Navy, LLC
(``Newco''), a Delaware corporation, entered into a Master Agreement, whereby Comcast agreed to pay $6.5 billion in cash to GE, and Comcast and GE each agreed to contribute certain assets to the JV to be called
Newco. Specifically, GE agreed to contribute all of the assets of NBCU, including its interest in Hulu and the 12 percent interest in NBCU it does not currently own but has agreed to purchase from Vivendi SA.
Comcast agreed to contribute all its cable programming assets, including its national networks as well as its RSNs, and some digital properties, but not its cable systems or its online video Web site,
Fancast. As a result of the content contributions and cash payment by
Comcast, Comcast will own 51 percent of the JV, and GE will retain a 49 percent interest. The JV will be managed by a separate board of directors initially consisting of three Comcast-designated directors and two GE-designated directors. Board decisions will be made by majority vote. 19. Comcast is precluded from transferring its interest in the JV for a four-year period, and GE is prohibited from transferring its interest for three and one-half years. Thereafter, either party may sell its respective interest in the JV, subject to Comcast's right to purchase at fair market value any interest that GE proposes to sell.
Additionally, three and one-half years after closing, GE will have the right to require the JV to redeem 50 percent of GE's interest; after seven years, GE will have the right to require the JV to redeem all of its remaining interest. If GE elects to exercise its first right of redemption, Comcast will have the contemporaneous right to purchase the remainder of GE's ownership interest once a purchase price is determined. If GE does not exercise its first redemption right, Comcast will have the right to buy 50 percent of GE's initial ownership interest five years after closing and all of GE's remaining ownership interest eight years after closing. It is expected that Comcast ultimately will own 100 percent of the JV.
IV. The Professional Video Programming Industry 20. The professional video programming industry has had three different levels: Content production, content aggregation or networks, and distribution.
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Content Production 21. Television production studios produce television shows and license that content to broadcast and cable networks. Content producers typically retain the rights to license their content for syndication
(e.g., licensing of series to networks or television stations after the initial run of the programming) as well as for DVD distribution and VOD or pay-per-view (``PPV'') services. In addition to first-run rights
(i.e., the rights to premiere the content), content producers such as
NBCU also license the syndication rights to their own programming to broadcast and cable networks. For example, House is produced by NBCU, licensed for its first run on the FOX broadcast network, and then rerun on the USA Network, a cable network owned by NBCU. These content licenses often include ancillary rights to related content (e.g., short segments of programming or clips, extras such as cast interviews, camera angles, and alternative feeds), as well as the right to offer some programming on demand (both online and through traditional cable, satellite, and telco distribution methods). 22. A content owner controls which entity receives its programming and when, through a process known as ``windowing.'' Historically, the first television release window was reserved for broadcast on one of the four major broadcast networks (ABC, CBS, NBC, and FOX), followed by broadcast syndication, and, ultimately, cable syndication. Over the past couple of years, however, content owners have created new windows and begun to allow their content to be distributed over the Internet on either a catch-up (e.g., next day) or syndicated (e.g., next season) basis. 23. In addition to producing content for television and cable networks, NBCU produces and distributes first-run movies through
Universal Pictures, Universal Studios, and Focus Films. Typically, these movies are distributed to theaters before being released on DVD, then licensed to VOD/PPV providers, then to premium cable channels
(e.g., Home Box Office (``HBO'')), then to regular cable channels, and finally to broadcast networks. As they have with television distribution, over the past several years content owners have experimented with different windows for distributing films over the
Internet.
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Programming Networks 24. Networks aggregate content to provide a 24-hour-per-day service that is attractive to consumers. The most popular networks, by far, are the four broadcast networks. The first cable network was HBO, which launched in the early 1970s. Since then, cable networks have grown in popularity and number. As of the end of 2009, there were an estimated 600 national, plus another 100 regional, cable programming networks.
More than 100 of these networks were also available in HD. 1. Broadcast Networks 25. Owners of broadcast network programming or broadcasters (e.g.,
NBCU) license their broadcast networks (e.g., NBC, Telemundo) either to third-party television stations affiliated with that network (``network affiliates''), or to their owned and operated television stations or
O&Os. The network affiliates and O&Os distribute the broadcast network feeds over the air to the public and, importantly, retransmit them to professional video programming distributors such as cable companies and
DBS providers, which in turn distribute the feeds to their subscribers. 26. The Cable Television Consumer Protection and Competition Act of 1992 (``1992 Cable Act''), Public Law 102-385, 106 Stat. 1460 (1992), gave broadcast television stations, whether network affiliates or O&Os, the option to demand ``retransmission consent,'' a process through which a distributor negotiates with the station for the right to carry the station's programming for agreed-upon terms. Alternatively, stations can elect ``must carry'' status, which involves a process through which the station can demand to be carried without compensation. Stations affiliated with the four major broadcast networks, including the O&Os, all have elected retransmission consent.
Historically, these stations negotiated for non-monetary reimbursement
(e.g., carriage of new cable channels) in exchange for retransmission consent. Today, most broadcast stations seek fees based on the number of subscribers to the cable, DBS, or telco service distributing their content. Less popular broadcast networks generally have elected must carry status, although recently they also have begun to negotiate retransmission payments. 27. In the past, NBCU has negotiated the retransmission rights only for its O&Os, but it has expressed interest in and made efforts to obtain the rights from its NBC broadcast network affiliates to negotiate retransmission consent agreements on their behalf. NBCU could also seek to renegotiate its agreements with its affiliates to obtain a share of any retransmission consent fees the affiliates are able to command.
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Cable Networks 28. In addition to the broadcast networks, programmers produce cable networks and sell them to video programming distributors. Most cable networks are based on a dual revenue-stream business model. They derive roughly half their revenues from licensing fees paid by distributors and the other half from advertising fees. The revenue split varies depending on several factors, including the type of programming (e.g., financial news or general entertainment) and whether the program is established or newly launched. 29. Generally, an owner of a cable network receives a monthly per- subscriber fee that may vary based upon the popularity or ratings of a network's programming, the volume of subscribers served by the distributor, the packages in which the programming is included, the percentage of the distributor's subscribers receiving the programming, and other factors. In addition to the right to carry the network, a distributor of the cable network often receives two to three minutes of advertising time per hour on the network that it can sell to local businesses (e.g., car dealers). A distributor may also receive marketing payments or discounts to encourage greater penetration of its potential consumers. In the case of a completely new cable network, a programmer may pay a distributor to carry the network or offer other discounts. 30. Over time, some video programming distributors, such as Comcast and Cablevision Corp., have purchased or launched their own cable networks. Vertical integration between content and distribution was a reason for the passage of Section 19 of the 1992 Cable Act, 47 U.S.C. 548. Pursuant to the Act, Congress directed the Federal Communications
Commission (``FCC'') to promulgate rules that place restrictions on how cable programmers affiliated with a cable company can deal with unaffiliated distributors. These ``program access rules'' apply to a cable company that owns a cable network, and prohibit both the cable company and the network from engaging in unfair acts or practices, including (1) Entering into exclusive agreements for the cable network;
(2) selling the cable network to the cable company's competitors on discriminatory terms and conditions; and (3) unduly influencing the cable network in deciding whom, and on what terms and conditions, to sell its programming. 47 CFR 76.1001-76.1002. The prohibition on exclusivity sunsets in October 2012, unless extended by the FCC after a rulemaking proceeding. The program access rules do not apply to online distribution or to retransmission of broadcast station content.
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Professional Video Programming Distribution 31. Video programming distributors acquire the rights to transmit professional, full-length broadcast and cable programming networks or individual programs or movies, aggregate the content, and distribute it to their subscribers or users. 1. Multichannel Video Programming Distributors (``MVPDs'') 32. Traditional video programming distributors offer hundreds of channels of professional video programming to residential customers for a fee. They include incumbent cable companies, DBS providers, cable overbuilders, also known as broadband service providers or ``BSPs''
(e.g., RCN), and telcos. These distributors are often collectively referred to as MVPDs (``multichannel video programming distributors'').
In response to increasing consumer demand to record and view video content at different times, many MVPDs offer services such as digital video recorders (``DVRs'') that allow consumers to record programming and view it later, and VOD services that allow viewers to view broadcast or cable network programming or movies on demand at times of their choosing. 2. Online Video Programming Distributors (``OVDs'') 33. OVDs offer numerous choices for on-demand professional (as opposed to user-generated, e.g., typical YouTube videos), full-length
(as opposed to clips) video programming over the Internet, whether streamed to Internet-connected televisions or other devices, or downloaded for later viewing. Currently, OVDs employ several business models, including free advertiser-supported streaming (e.g., Hulu),
aacute
la carte downloads or electronic sell-through (``EST'') (e.g.,
Apple iTunes, Amazon), subscription streaming models (e.g., Hulu Plus,
Netflix), per-program rentals (e.g., Apple iTunes, Vudu), and hybrid hardware/subscription models (e.g., Tivo, Apple TV/iTunes). 34. Consumer desire for on-demand viewing and increased broadband speeds that have greatly improved the quality of the viewing experience have led to distribution of more professional content by OVDs. Online video viewing has grown enormously in the last several years and is expected to increase. Today, some consumers regard OVDs as acceptable substitutes for at least a portion of their traditional video programming distribution services. These consumers buy smaller content packages from traditional distributors, decline to take certain premium channels, or purchase fewer VOD offerings, and instead watch that content online, a practice known as ``cord-shaving.'' A smaller but growing number of MVPD customers also are ``cutting the cable cord'' completely in favor of OVDs. These trends indicate the growing significance of competition between OVDs and MVPDs. 35. OVD services, individually or collectively, are likely to continue to develop into better substitutes for MVPD video services.
Evolving consumer demand, improving technology (e.g., higher Internet access speeds, better compression to improve picture quality, improved digital rights management to fight piracy), and advertisers' increasing willingness to place their ads on the Internet, likely will make OVDs stronger competitors to MVPDs for greater numbers of existing and new viewers. 36. Comcast and other MVPDs recognize the impact of OVDs. Their documents consistently portray the emergence of OVDs as a significant competitive threat. MVPDs, including Comcast, have responded by improving existing services and developing new, innovative services for their customers. For example, MVPDs have improved user interfaces and video search functionality, offered more VOD programming, and begun to offer programming online. 37. GE, through its ownership of NBCU, is a content producer and an owner of broadcast and cable channels. Comcast is primarily a distributor of video programming, although it owns some cable networks.
Through the proposed JV, Comcast will control assets that produce and aggregate some of the most significant video content. Comcast also will continue to own the nation's largest distributor of video programming to residential customers.
V. Relevant Market 38. The relevant product market affected by this transaction is the timely distribution of professional, full-length video programming to residential customers (``video programming distribution''). Both MVPDs and OVDs are participants in this market. Video programming distribution is characterized by the aggregation of professionally produced content, consisting of entire episodes of shows and movies, rather than short clips. This content includes live programming, sports, and general entertainment
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programming from a mixture of broadcast and cable networks, as well as from movie studios. Video programming distributors typically offer various packages of content (e.g., basic, expanded basic, digital), quality levels (e.g., standard-definition, HD, 3D), and business models
(e.g., free ad-supported, subscription). Video programming can be viewed immediately by consumers, whether on demand or as scheduled
(i.e., in a cable network's linear stream). 39. A variety of companies distribute video programming--cable,
DBS, overbuilder, telco, and online. Cable has remained the dominant distributor even as other companies have entered video programming distribution. In the mid-1990s, DirecTV and DISH Network began offering hundreds of channels using small satellite dishes. Around the same time, firms known as ``overbuilders'' began building their own wireline networks, primarily in urban areas, to compete with the incumbent cable operator and offer video, high-speed Internet, and voice telephony services--the ``triple-play.'' More recently, Verizon and AT&T entered the market with their own networks and also offer the triple-play.
Competition from these video programming distributors has provoked incumbent cable operators across the country to upgrade their systems and thereby offer substantially more video programming channels, as well as the triple-play. Now, OVDs are introducing new and innovative business models and services to inject even more competition into the video programming distribution market. 40. Historically, over-the-air (``OTA'') distribution of broadcast network content has not served as a significant competitive constraint on MVPDs because of the limited number of channels offered. In addition, OTA distribution likely will not expand in the future, as no new broadcast networks are likely to be licensed for distribution. This diminishes the possibility that OTA could increase its content package substantially to compete with MVPDs. Thus, OTA is unlikely to become a significant video programming distributor. By contrast, OVDs, though they may offer more limited viewing options than MVPDs currently, are expanding rapidly and have the potential to provide increased and more innovative viewing options in the future. 41. Consumers purchasing video programming distribution services select from among those distributors that can offer such services directly to their home. The DBS operators, DirecTV and DISH, can reach almost any customer in the continental United States who has an unobstructed line of sight to their satellites. OVDs are available to any consumer with a high-speed Internet service sufficient to receive video of an acceptable quality. However, wireline cable distributors such as Comcast and Verizon generally must obtain a franchise from local, municipal, or state authorities in order to construct and operate a wireline network in a specific area, and then build lines only to homes in that area. A consumer cannot purchase video programming distribution services from a wireline distributor operating outside its area because that firm does not have the facilities to reach the consumer's home. Thus, although the set of video programming distributors able to offer service to individual consumers' residences generally is the same within each local community, that set differs from one local community to another and can vary even within a local community. 42. For ease of analysis, it is useful to aggregate consumers who face the same competitive choices in video programming distribution by, for example, aggregating customers in a county or other jurisdiction served by the same group of distributors. The United States thus comprises numerous local geographic markets for video programming distribution, each consisting of a community whose residents face the same competitive choices. In the vast majority of local markets, customers can choose from among the local cable incumbent and the two
DBS operators. Approximately 38 percent of consumers can also buy video services from a telco, and a much smaller percentage live in areas where overbuilders provide service. OVDs are emerging as another viable option for consumers who have access to high-speed Internet services.
OVDs rely on other companies' high-speed Internet services to deliver content to consumers. 43. The geographic markets relevant to this transaction are the numerous local markets throughout the United States where Comcast is the incumbent cable operator, covering over 50 million U.S. television households (about 45 percent nationwide), and where Comcast will be able to withhold NBCU programming from, or raise the programming costs to, its rival distributors, both MVPDs and OVDs. Because these competitors serve areas outside Comcast's cable footprint, other local markets served by these rival distributors may be affected, with the competitive effects of the transaction potentially extending to all
Americans. 44. A hypothetical monopolist of video programming distribution in any of these geographic areas could profitably raise prices by a small but not insignificant, non-transitory amount. While consumers naturally look for other options in response to higher prices, the number of consumers that would likely find these other options to be adequate substitutes is insufficient to make the higher prices unprofitable for the hypothetical monopolist. Thus, video programming distribution in any of these geographic areas is a well-defined antitrust market and is susceptible to the exercise of market power.
VI. Market Concentration 45. The incumbent cable companies often dominate any particular market with market shares within their franchise areas well above 50 percent. For example, Comcast has the market shares of 64 percent in
Philadelphia, 62 percent in Chicago, 60 percent in Miami, and 58 percent in San Francisco (based on MVPD subscribers). Combined, the DBS providers account for approximately 31 percent of total video programming distribution subscribers nationwide, although their shares vary and may be lower in any particular local market. AT&T and Verizon have had great success and achieved penetration (i.e., the percentage of households to which a provider's service is available that actually buys its service) as high as 40 percent in the selected communities they have entered, although they currently have limited expansion plans. Overbuilders serve only about one percent of U.S. television households nationwide. 46. Today, OVDs have a de minimis share of the video programming distribution market in any geographic area. OVD services are available to any consumer who purchases a broadband connection. However, established distributors, such as Comcast, view OVDs as a growing competitive threat and have taken steps to respond to that threat.
OVDs' current market shares, therefore, greatly understate both their future and current competitive significance in terms of the influence they are having on traditional video programming distributors' investment decisions to expand offerings and embrace Internet distribution themselves.
VII. Anticompetitive Effects 47. Today, Comcast competes with DBS, overbuilder, and telco competitors by upgrading its existing services (e.g., improving its network, expanding its
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VOD and HD offerings), and through promotional and other forms of price discounts. In particular, Comcast strives to provide a service that it can promote as better than its rivals' services in terms of variety of programming choices, higher-quality services, and unique features
(e.g., unique programming or ease of use). Consumers benefit from this competition by receiving better quality services and, in some cases, lower prices. This competition has also fostered innovation, including the development of digital transmission, HD and 3D programming, and the introduction of DVRs and VOD offerings. 48. The proposed JV would allow Comcast to limit competition from
MVPD competitors and from the growing threat of OVDs. The JV would give
Comcast control over NBCU content that is important to its competitors.
Comcast has long recognized that by withholding certain content from competitors, it can gain additional cable subscribers and limit the growth of emerging competition. Comcast has refused to license one of its RSNs, CSN Philadelphia, to DirecTV or DISH. As a result, DirecTV's and DISH's market shares in Philadelphia are much lower than in other areas where they have access to RSN programming. 49. Control of NBCU programming will give Comcast an even greater ability to disadvantage its competitors. Carriage of NBCU programming, including the NBC broadcast network, is important for video programming distributors to compete effectively. Out of hundreds of networks, the
NBC broadcast network consistently is ranked among the top four in consumer interest surveys. It receives high Nielsen ratings, which distributors and advertisers use as a proxy for a network's value. The importance of the NBC broadcast network to a distributor is underscored by the fact that NBCU has recently negotiated significant retransmission fees with certain distributors that when combined with its advertising revenues, rival the most valuable cable network programming. Economic studies show that distributors that lose important broadcast content for any significant period of time suffer substantial customer losses to their competitors. 50. NBCU's cable networks also are important to consumers and therefore to video programming distributors. USA Network has been the highest-rated cable network the past four years. CNBC is by far the highest-rated financial news cable network, and Bravo and SyFy are top- rated cable networks for their particular demographics. NBCU's cable networks are widely distributed and command high fees. 51. As a result of the JV, Comcast will gain control over the NBC
O&Os in local television markets where Comcast is the dominant video programming distributor. The JV will give Comcast the ability to raise the fees for retransmission consent for the NBC O&Os or effectively deny this programming entirely to certain video programming distribution competitors. In addition, Comcast may be able to gain the right to negotiate on behalf of its broadcast network affiliate stations or the ability to influence the affiliates' negotiations with its distribution competitors. In either case, these distributors would be less effective competitors to Comcast. Comcast also will control
NBCU's cable networks and film content, increasing the ability of the
JV to obtain higher fees for that programming. The JV will have less incentive to distribute NBCU programming to Comcast's video distribution rivals than a stand-alone NBCU. Faced with weakened competition, Comcast can charge consumers more and will have less incentive to innovate. 52. The impact of the JV on emerging competition from the OVDs is extremely troubling given the nascent stage of OVDs' development and the potential of these distributors to significantly increase competition through the introduction of new and innovative features, packaging, pricing, and delivery methods. NBCU has been one of the content providers most willing to support OVDs and experiment with different methods of online distribution. It was a founding partner in
Hulu, the largest OVD today, and prior to the announcement of the transaction entered into several contracts with OVDs, such as Apple iTunes, Amazon, and Netflix. 53. Comcast and other MVPDs have significant concerns over emerging competition by OVDs. To the extent that consumers, now or in the future, view OVDs as substitutes for traditional video programming distributors, they will be able to challenge Comcast's dominant position as a video programming distributor. Comcast has taken several steps to keep its customers from cord-shaving or cord-cutting in favor of OVDs. These efforts include launching its own online video portal
(Fancast), improving its VOD library and online interactive interface
(in order to compete with, e.g., Netflix and Amazon), and deploying its
``authenticated'' online, on-demand service. Consumers have benefited from Comcast's competitive responses and, absent the JV, would benefit from increased competition from OVDs. 54. Comcast has an incentive to encumber, through its control of the JV, the development of nascent distribution technologies and the business models that underlie them by denying OVDs access to NBCU content or substantially increasing the cost of obtaining such content.
As a result, Comcast will face less competitive pressure to innovate, and the future evolution of OVDs will likely be muted. Comcast's incentives and ability to raise the cost of or deny NBCU programming to its distribution rivals, especially OVDs, will lessen competition in video programming distribution.
VIII. Absence of Countervailing Factors
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Entry 55. Entry or expansion of traditional video programming distributors on a widespread scale or entry of programming networks comparable to NBCU's will not be timely, likely, or sufficient to reverse the competitive harm that would likely result from the proposed
JV. OVDs are less likely to develop into significant competitors if denied access to NBCU content.
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Efficiencies 56. The proposed JV will not generate verifiable, merger-specific efficiencies sufficient to reverse the competitive harm of the proposed
JV.
IX. Violations Alleged
Violation of Section 7 of the Clayton Act by Each Defendant 57. The United States and the Plaintiff States hereby incorporate paragraphs 1 through 56. 58. Pursuant to a Master Agreement dated December 3, 2009, Comcast,
GE, and NBCU intend to form a joint venture. 59. The effect of the proposed JV and Comcast's acquisition of 51 percent of it would be to lessen competition substantially in interstate trade and commerce in numerous geographic markets for video programming distribution, in violation of Section 7 of the Clayton Act, 15 U.S.C. 18, and Sections 1 and 2 of the Sherman Act, 15 U.S.C. 1, 2. 60. This proposed JV threatens loss or damage to the general welfare and economies of each of the Plaintiff States, and to the citizens of each of the Plaintiff States. The Plaintiff States and their citizens will be subject to a continuing and substantial threat of irreparable injury to the general welfare and economy, and to competition, in their respective jurisdictions unless the
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Defendants are enjoined from carrying out this transaction, or from entering into or carrying out any agreement, understanding, or plan by which Comcast would acquire control over NBCU or any of its assets. 61. The proposed JV will likely have the following effects, among others: a. Competition in the development, provision, and sale of video programming distribution services in each of the relevant geographic markets will likely be eliminated or substantially lessened; b. Prices for video programming distribution services will likely increase to levels above those that would prevail absent the JV; and c. Innovation and quality of video programming distribution services will likely decrease to levels below those that would prevail absent the JV.
X. Requested Relief 62. The United States and the Plaintiff States request that: a. The proposed JV be adjudged to violate Section 7 of the Clayton
Act, 15 U.S.C. 18; b. Comcast, GE, NBCU, and Newco be permanently enjoined from carrying out the proposed JV and related transactions; carrying out any other agreement, understanding, or plan by which Comcast would acquire control over NBCU or any of its assets; or merging; c. The United States and the Plaintiff States be awarded their costs of this action; d. The Plaintiff States be awarded their reasonable attorneys' fees; and e. The United States and the Plaintiff States receive such other and further relief as the case requires and the Court deems just and proper.
Dated: January 18, 2011
Respectfully submitted,
For Plaintiff United States:
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Christine A. Varney (DC Bar 411654)
Assistant Attorney General for Antitrust
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Molly S. Boast
Deputy Assistant Attorney General
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Gene I. Kimmelman (DC Bar 358534)
Chief Counsel for Competition Policy and Intergovernmental Relations
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Patricia A. Brink
Director of Civil Enforcement
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Joseph J. Matelis (DC Bar 462199)
Counsel to the Assistant Attorney General
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Nancy M. Goodman
Chief
Laury E. Bobbish
Assistant Chief, Telecommunications & Media Enforcement
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John R. Read (DC Bar 419373)
Chief
David C. Kully (DC Bar 448763)
Assistant Chief, Litigation III
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Yvette F. Tarlov* (DC Bar 442452)
Attorney, Telecommunications & Media Enforcement, Antitrust
Division, U.S. Department of Justice, 450 Fifth Street, NW., Suite 7000, Washington, DC 20530, Telephone: (202) 514-5621, Facsimile:
(202) 514-6381, E-mail: Yvette.Tarlov@usdoj.gov
Matthew J. Bester (DC Bar 465374)
Shobitha Bhat
Hillary B. Burchuk (DC Bar 366755)
Luin P. Fitch
Paul T. Gallagher (DC Bar 439701)
Peter A. Gray
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Patrick Hallagan
Michael K. Hammaker (DC Bar 233684)
Matthew C. Hammond
Joyce B. Hundley
Robert A. Lepore
Erica S. Mintzer (DC Bar 450997)
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Joseph Pinto III
Warren A. Rosborough IV (DC Bar 495063)
Natalie Rosenfelt
Blake W. Rushforth
Anthony D. Scicchitano
Jennifer A. Wamsley (DC Bar 486540)
Frederick S. Young (DC Bar 421285)
Attorneys for the United States
* Attorney of Record
For Plaintiff State of California
Kamala D. Harris
Attorney General
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Jonathan M. Eisenberg
Deputy Attorney General, California Department of Justice, Office of the Attorney General, CSB No. 184162, 300 South Spring Street, Suite 1702, Los Angeles, California 90013, Phone: (213) 897-6505,
Facsimile: (213) 620-6005, jonathan.eisenberg@doj.ca.gov
For Plaintiff State of Florida
Pamela Jo Bondi
Attorney General, State of Florida
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Patricia A. Conners
Associate Deputy Attorney General
Eli A. Friedman
Assistant Attorney General
Lizabeth A. Brady
Chief, Multistate Antitrust Enforcement, Antitrust Division, PL-01,
The Capitol, Tallahassee, FL 32399-1050, Tel: (850) 414-3300, Fax:
(850)488-9134, E-mail: Eli.Friedman@myfloridalegal.com
For Plaintiff State of Missouri
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Chris Koster
Attorney General
Anne E. Schneider
Assistant Attorney General/Antitrust Counsel
Andrew M. Hartnett
Assistant Attorney General
P.O. Box 899 Jefferson City, MO 65109 573/751-7445, F: 573/751-2041, anne.schneider@ago.mo.gov,
For Plaintiff State of Texas
Greg Abbott
Attorney General of Texas
Daniel T. Hodge
First Assistant Attorney General
Bill Cobb
Deputy Attorney General for Civil Litigation
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John T. Prud'homme, Jr.
Chief, Antitrust Division, Office of the Attorney General, 300 W. 15th St., 7th floor, Austin, Texas 78701, (512) 936-1697, (512) 320- 0975--facsimile
For Plaintiff State of Washington
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David M. Kerwin
Assistant Attorney General, Antitrust Division, Office of the
Attorney General of Washington, 800 Fifth Avenue, Suite 2000,
Seattle, WA 98104-3188, 206/464-7030, davidk3@atg.wa.gov
United States District Court for the District of Columbia
United States of America, State of California, State of Florida,
State of Missouri, State of Texas, and State of Washington,
Plaintiffs, v. Comcast Corp., General Electric Co., and NBC
Universal, Inc., Defendants.
Case: 1:11-cv-00106.
Assigned To: Leon, Richard J.
Assign. Date: 1/18/2011.
Description: Antitrust.
Competitive Impact Statement
The United States of America (``United States''), acting under the direction of the Attorney General of the United States, pursuant to
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or
``Tunney Act''), 15 U.S.C. 16(b)-(h), files this Competitive Impact
Statement relating to the proposed Final Judgment (attached hereto as
Exhibit A) submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On December 3, 2009, Comcast Corporation (``Comcast''), General
Electric Company (``GE''), NBC Universal, Inc. (``NBCU''), and Navy,
LLC (``Newco''), announced plans to form a new Joint Venture (``JV'') to which Comcast and GE will contribute broadcast and cable network assets. As a result of the transaction, Comcast--the nation's largest cable company--will have majority control of a JV holding highly valued video programming needed by Comcast's video distribution rivals to compete effectively.
The United States filed a civil antitrust Complaint on January 18, 2011, seeking to enjoin the proposed transaction because its likely effect
Page 5447
would be to lessen competition substantially in the market for timely distribution of professional, full-length video programming to residential customers (``video programming distribution'') in major portions of the United States in violation of Section 7 of the Clayton
Act, 15 U.S.C. 18. The transaction would allow Comcast to disadvantage its traditional competitors (direct broadcast satellite (``DBS'') and telephone companies (``telcos'') that provide video services), as well as competing emerging online video distributors (``OVDs''). This loss of current and future competition likely would result in lower-quality services, fewer choices, and higher prices for consumers, as well as reduced investment and less innovation in this dynamic industry.
On January 18, 2011, the Federal Communications Commission
(``FCC'') adopted a Memorandum Opinion and Order relating to the foregoing transaction.\1\ The FCC's Order approved the transaction subject to certain conditions.
\1\ Memorandum Opinion and Order, In re Applications of Comcast
Corp., General Electric Co. and NBC Universal, Inc. for Consent to
Assign Licenses and Transfer Control of Licensees, FCC MB Docket No. 10-56 (adopted Jan. 18, 2011). Under the Communications Act, the FCC has jurisdiction to determine whether mergers involving the transfer of a telecommunications license are in the ``public interest, convenience, and necessity.'' 47 U.S.C. 310(d).
Under the proposed Final Judgment filed by the United States
Department of Justice simultaneously with this Competitive Impact
Statement and explained more fully below, Defendants will be required, among other things, to license the JV's programming to Comcast's emerging OVD competitors in certain circumstances. When Defendants and
OVDs cannot reach agreement on the terms and conditions of the license, the aggrieved OVD may apply to the Department for permission to submit its dispute to commercial arbitration under the proposed Final
Judgment. The FCC Order contains a similar provision. For so long as commercial arbitration is available for the resolution of such disputes in a timely manner under the FCC's rules and orders, the Department will ordinarily defer to the FCC's commercial arbitration process to resolve such disputes. However, the Department reserves the right, in its sole discretion, to permit arbitration under the proposed Final
Judgment to advance the Final Judgment's competitive objectives. In addition, the Department may seek relief from the Court to address violations of any provisions of the proposed Final Judgment. The proposed Final Judgment also contains provisions to prevent Defendants from interfering with an OVD's ability to obtain content or deliver its services over the Internet.
The proposed Final Judgment will provide a prompt, certain, and effective remedy for consumers by diminishing Comcast's ability to use the JV's programming to harm competition. The United States and
Defendants have stipulated that the proposed Final Judgment may be entered after compliance with the APPA. Entry of the proposed Final
Judgment would terminate this action, except that the Court would retain jurisdiction to construe, modify, or enforce the provisions of the proposed Final Judgment, and to punish and remedy violations thereof.
II. Description of Events Giving Rise to the Alleged Violation
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Defendants, the Proposed Transaction, and the Department's
Investigation 1. Comcast
Comcast is a Pennsylvania corporation headquartered in
Philadelphia, Pennsylvania. It is the largest cable company in the nation, with approximately 23 million video subscribers. Comcast is also the largest Internet service provider (``ISP''), with over 16 million subscribers. Comcast also wholly owns national cable programming networks, including E! Entertainment, G4, Golf, Style, and
Versus, and has partial ownership interests in Current Media, MLB
Network, NHL Network, PBS KIDS Sprout, Retirement Living Television, and TV One. In addition, Comcast has controlling and partial interests in regional sports networks (``RSNs'').\2\ Comcast also owns digital properties such as DailyCandy.com, Fandango.com, and Fancast, its online video Web site. In 2009, Comcast reported total revenues of $36 billion. Over 94 percent of Comcast's revenues, or $34 billion, were derived from its cable business, including $19 billion from video services, $8 billion from high-speed Internet services, and $1.4 billion from local advertising on Comcast's cable systems. In contrast,
Comcast's cable programming networks earned only about $1.5 billion in revenues from advertising and fees collected from video programming distributors.
\2\ Comcast owns Comcast SportsNet (``CSN'') Bay Area, CSN
California, CSN Mid-Atlantic, CSN New England, CSN Northwest, CSN
Philadelphia, CSN Southeast, and CSN Southwest, and holds partial ownership interests in CSN Chicago, SportsNet New York, and The Mtn.
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GE and NBCU
GE is a New York corporation with its principal place of business in Fairfield, Connecticut. GE is a global infrastructure, finance, and media company. GE owns 88 percent of NBCU, a Delaware corporation, headquartered in New York, New York. NBCU is principally involved in the production, packaging, and marketing of news, sports, and entertainment programming.
NBCU wholly owns the NBC and Telemundo broadcast networks, as well as ten local NBC owned and operated television stations (``O&Os''), 16
Telemundo O&Os, and one independent Spanish language television station. In addition, NBCU wholly owns national cable programming networks--Bravo, Chiller, CNBC, CNBC World, MSNBC, mun2, Oxygen,
Sleuth, SyFy, and USA Network--and partially owns A&E Television
Networks (including the Biography, History, and Lifetime cable networks), The Weather Channel, and ShopNBC.
NBCU also owns Universal Pictures, Focus Films, and Universal
Studios, which produce films for theatrical and digital video disk
(``DVD'') release, as well as content for NBCU's and other companies' broadcast and cable programming networks. NBCU produces approximately three-quarters of the original primetime programming shown on the NBC broadcast network and the USA cable network, NBCU's two highest-rated networks. In addition to its programming assets, NBCU owns several theme parks and digital assets, such as iVillage.com. In 2009, NBCU had total revenues of $15.4 billion.
NBCU also is a founding partner and 32 percent owner of Hulu, LLC, currently one of the most successful OVDs. Hulu is a joint venture between NBCU, News Corp., The Walt Disney Company, and a private equity investor. Each of the media partners has representation on the Hulu
Board, possesses management rights, and licenses content for Hulu to deliver over the Internet. 3. The Proposed Transaction
On December 3, 2009, Comcast, GE, NBCU, and Newco, entered into a
Master Agreement (``Agreement''), whereby Comcast agreed to pay $6.5 billion in cash to GE, and Comcast and GE each agreed to contribute certain assets to the JV. Specifically, GE agreed to contribute all of the assets of NBCU, including its interest in Hulu, and the 12 percent interest in NBCU that GE does not own but has agreed to purchase
Page 5448
from Vivendi SA. Comcast agreed to contribute all its cable programming assets, including its national programming networks, its RSNs, and some digital properties, but not its cable systems or its Internet video service, Fancast. As a result of the content contributions and cash payment by Comcast, Comcast will own 51 percent of the JV, and GE will retain a 49 percent interest. The JV will be managed by a separate
Board of Directors consisting initially of three Comcast-designated directors and two GE-designated directors. Board decisions will be made by majority vote.
The Agreement precludes Comcast from transferring its interest in the JV for a four-year period, and prohibits GE from transferring its interest for three and one-half years. Thereafter, either party may sell its respective interest in the JV, subject to Comcast's right to purchase at fair market value any interest that GE proposes to sell.
Additionally, three and one-half years after closing, GE will have the right to require the JV to redeem 50 percent of GE's interest and, after seven years, GE will have the right to require the JV to redeem all of its remaining interest. If GE elects to exercise its first right of redemption, Comcast will have the contemporaneous right to purchase the remainder of GE's ownership interest once a purchase price is determined. If GE does not exercise its first redemption right, Comcast will have the right to buy 50 percent of GE's initial ownership interest five years after closing and all of GE's remaining ownership interest eight years after closing. It is expected that Comcast ultimately will own 100 percent of the JV. 4. The Department's Investigation
The Department opened an investigation soon after the JV was announced and conducted a thorough and comprehensive review of the video programming distribution industry and the potential implications of the transaction. The Department interviewed more than 125 companies and individuals involved in the industry, obtained testimony from
Defendants' officers, required Defendants to provide the Department with responses to numerous questions, reviewed over one million business documents from Defendants' officers and employees, obtained and reviewed tens of thousands of third-party documents, obtained and extensively analyzed large volumes of industry financial and economic data, consulted with industry and economic experts, organized product demonstrations, and conducted independent industry research. The
Department also consulted extensively with the FCC to ensure that the agencies conducted their reviews in a coordinated and complementary fashion and created remedies that were both comprehensive and consistent.
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The Video Programming Industry
NBCU and Comcast are participants in the video programming industry, in which content is produced and distributed to viewers through their television sets or, increasingly, through Internet- connected devices. Historically, the video programming industry has had three different levels: content production, content aggregation or networks, and distribution. 1. Content Production
Television production studios produce television shows and coordinate how, when, and where their content is licensed in order to maximize revenues. They usually license to broadcast and cable networks the right to show a program first (i.e., the first-run rights). Content producers also license their content for subsequent ``windows'' such as syndication (e.g., licensing series to broadcast and cable networks after the first run of the programming), as well as for DVD distribution, video on demand (``VOD''), and pay per view (``PPV'') services. For example, the television show House is produced by NBCU, licensed for its first run on the FOX broadcast network and then rerun on the USA Network, a cable network owned by NBCU. These content licenses often include ancillary rights such as the right to offer some programming on demand.
Historically, first-run licenses were reserved for one of the four major broadcast networks (ABC, CBS, NBC, and FOX), followed by broadcast syndication and, ultimately, cable syndication. Over the past several years, however, content owners have begun to license their content for first run on cable networks and distribution over the
Internet on either a catch-up (e.g., next day) or syndicated (e.g., next season) basis.
In addition to producing content for television and cable networks,
NBCU produces and distributes first-run movies through Universal
Pictures, Universal Studios, and Focus Films. Typically, producers distribute movies to theaters before releasing them on DVD, then license them to VOD/PPV providers, then to premium cable channels
(e.g., Home Box Office (``HBO'')), then to regular cable channels, and finally to broadcast networks. As with television distribution, studios have experimented with different windows for film distribution over the past several years. 2. Programming Networks
Networks aggregate content to provide a 24-hour service that is attractive to consumers. The most popular networks, by far, are the four broadcast networks.\3\ However, cable networks have grown in popularity and number, and at the end of 2009 there were an estimated 600 national, plus another 100 regional, cable programming networks.
\3\ The four largest broadcast networks attract 8 to 12 million viewers each, whereas the most popular cable networks typically attract approximately 2 million viewers each. SNL Kagan, Economics of Basic Cable Networks 43 (2009); The Nielsen Company, Snapshot of
Television Use in the U.S. 2 (Sept. 2010), http://blog.nielsen.com/ nielsenwire/wp-content/uploads/2010/09/Nielsen-State-of-TV- 09232010.pdf.
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Broadcast Networks
Owners of broadcast network programming or broadcasters like NBCU license their broadcast networks either to third-party television stations affiliated with that network (``network affiliates''), or to their owned and operated television stations (``O&Os''). The network affiliates and O&Os distribute the broadcast network feeds over the air
(``OTA'') to the public and also retransmit them to video programming distributors, such as cable companies and DBS providers, which in turn distribute the feeds to their subscribers.
Under the Cable Television Consumer Protection and Competition Act of 1992 (``1992 Cable Act''), Public Law 102-385, 106 Stat. 1460
(1992), broadcast television stations, whether network affiliates or
O&Os, may elect to obtain ``retransmission consent'' from a programming distributor, in which case a distributor negotiates with a station for the right to carry the station's programming for agreed-upon terms.
Alternatively, stations may elect ``must carry'' status and demand carriage but without compensation. Stations affiliated with the four major broadcast networks and the networks' O&Os have elected retransmission consent. Historically, these stations negotiated for non-monetary compensation (e.g., carriage of new cable channels owned by the broadcaster) in exchange for retransmission consent. Today, most broadcast stations seek retransmission consent fees based on the number of subscribers to the cable, DBS, or telco service distributing their content.\4\ Less
Page 5449
popular broadcast networks generally elect must carry status, although recently they also have begun to negotiate retransmission payments.
Despite these retransmission payments, broadcast stations earn the majority of their revenues from local advertising sales. The broadcast networks earn most of their revenues from national advertising sales.
\4\ In the past, NBCU negotiated the retransmission rights only for its O&Os, but recently it has made efforts to obtain the rights from its network affiliates to negotiate retransmission consent agreements on their behalf. NBCU also may seek to renegotiate its agreements with its affiliates to obtain a share of any retransmission consent fees the affiliates are able to command.
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Cable Networks
Popular cable networks include ESPN, USA, MTV, CNN, and Bravo.
Cable networks typically derive roughly one half of their revenues from licensing fees paid by video programming distributors and the other half from advertising fees. Generally, a distributor pays an owner of cable networks a monthly per-subscriber fee that may vary based upon the number of subscribers served by the distributor, the programming packages in which the program is included, the percentage of the distributor's subscribers receiving the programming, and other factors.
Typically, the popularity or ratings of a network's programming affects the ability of a content owner to negotiate higher license fees. In addition to the right to carry the network, a distributor of the cable network often receives two to three minutes of advertising time per hour on the network for sale to local businesses (e.g., car dealers). A distributor also may receive marketing payments or discounts to encourage wider distribution of the programming. In the case of a completely new cable network, a programmer may pay a distributor to carry the network or offer other discounts. 3. Video Programming Distribution
Video programming distributors acquire the rights to transmit professional (as opposed to user-generated videos such as those typically seen on YouTube), full-length (as opposed to clips) broadcast and cable programming networks or individual programs or movies, aggregate the content, and distribute it to their subscribers or users.
This content includes live programming, sports, and general entertainment programming from a variety of broadcast and cable networks and from movie studios, and can be viewed either on demand or as scheduled in a broadcast or cable network's linear stream. Video programming distributors offer various packages of content (e.g., basic, expanded basic, digital) with different quality levels (e.g., standard definition, HD, 3D), and employ different business models
(e.g., ad-supported, subscription). a. Multichannel Video Programming Distributors
Traditional video programming distributors include incumbent cable companies, DBS providers, cable overbuilders, also known as broadband service providers (``BSPs,'' such as RCN), and telcos. These distributors are referred to as multichannel video programming distributors (``MVPDs''), and typically offer hundreds of channels of professional video programming to residential customers for a fee. b. Online Video Programming Distributors
OVDs are relatively recent entrants into the video programming distribution market. They deliver a variety of on-demand professional, full-length video programming over the Internet, whether streamed to
Internet-connected televisions or other devices, or downloaded for later viewing. Hulu, Netflix, Amazon, and Apple are examples of OVDs, although the content delivered and business model used varies greatly among them.
Unlike MVPDs, OVDs do not own distribution facilities and are dependent upon ISPs for the delivery of their content to viewers.
Therefore, the future growth of OVDs depends, in part, on how quickly
ISPs expand and upgrade their broadband facilities and the preservation of their incentives to innovate and invest.\5\ The higher the bandwidth available from the ISP, the greater the speed and the better the quality of the picture delivered to an OVD's users.
\5\ See discussion infra Section II.C.2.b.
ISPs' management and pricing of broadband services may also affect
OVDs. In particular, OVDs would be harmed competitively if ISPs that are also MVPDs (e.g., cable companies, telcos) were to impair or delay the delivery of video because OVDs pose a threat to those MVPDs' traditional video programming distribution businesses. Because Comcast is the country's largest ISP, an inherent conflict exists between
Comcast's provision of broadband services to its customers, who may use this service to view video programming provided by OVDs, and its desire to continue to sell them MVPD services.
Growth of OVDs also will depend, in part, on their ability to acquire programming from content producers. Some cable companies, such as Comcast and Cablevision Corp., have purchased or launched their own cable networks. This vertical integration of content and distribution was one reason for the passage of Section 19 of the 1992 Cable Act, 47
U.S.C. 548. Pursuant to the Act, Congress directed the FCC to promulgate rules that place restrictions on how cable programmers affiliated with a cable company deal with unaffiliated distributors.
These ``program access rules'' were designed to prevent vertically integrated cable companies from refusing to provide popular programming to their competitors. The rules prohibit both the cable company and a cable network owned by it from engaging in unfair acts and practices, including: (1) Entering into exclusive agreements to distribute the cable network; (2) selling the cable network to the cable company's competitors on discriminatory terms and conditions; and (3) unduly influencing the cable network in deciding to whom, and on what terms and conditions, to sell its programming.\6\ The FCC program access rules do not apply to online distribution or to retransmission of broadcast station content.
\6\ 47 CFR 76.1001-76.1002. The prohibition on exclusivity sunsets in October 2012, unless extended by the FCC pursuant to a rulemaking. Id. Sec. 76.1002(c)(6).
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The Market for Video Programming Distribution in the United States
The relevant product market affected by this transaction is the market for timely distribution of professional, full-length video programming to residential customers (``video programming distribution''). Professionally produced content is video programming that is created or produced by media and entertainment companies using professional equipment, talent, and production crews, and for which those companies hold or maintain distribution and syndication rights.
Video programming distribution is characterized by the aggregation of professionally produced content consisting of entire episodes of shows and movies, rather than short clips. The market for video programming distribution includes both MVPDs and OVDs. 1. Traditional Video Programming Distribution
Cable companies first began operating in the 1940s and initially were granted exclusive franchises to serve local communities. Although they now face competition, the incumbent cable companies continue to serve a dominant
Page 5450
share of subscribers in most areas. In the mid-1990s, DirecTV and DISH
Network began to offer competing services using small satellite dishes installed on consumers' homes. Around the same time, cable overbuilders began building their own wireline networks in order to compete with the incumbent cable operator and offer video, high-speed Internet, and telephony services--the ``triple-play.'' More recently, Verizon and
AT&T entered the market with their own video distribution services, also offering the triple-play. Competition from these video programming distributors encouraged incumbent cable operators across the country to upgrade their systems and offer many more video programming channels, as well as the triple-play. Further innovations have included digital video recorders (``DVRs'') that allow consumers to record programming and view it later, and VOD services that enable viewers to watch broadcast or cable network programming or movies on demand at the consumer's convenience for a limited time.
A consumer purchasing video programming distribution services selects from those distributors offering such services directly to that consumer's home. The DBS operators--DirecTV and DISH--can reach almost any consumer who lives in the continental United States and has an unobstructed line of sight to the DBS operators' satellites. However, wireline cable distributors, such as Comcast and Verizon, generally must obtain a franchise from local or state authorities to construct and operate a wireline network in a specific area, and can build lines only to the homes in that area. A consumer cannot purchase video programming distribution services from a wireline distributor operating outside its area because that firm does not have the facilities to reach the consumer's home. Consequently, although the set of video programming distributors able to offer service to individual consumers' residences generally is the same within each local community, that set differs from one local community to another and can even vary within a local community. The markets for video programming distribution therefore are local.
The geographic markets relevant to this transaction are the numerous local markets throughout the United States where Comcast is the incumbent cable operator and where Comcast through the JV will be able to withhold NBCU programming from, or raise programming costs to,
Comcast's rival distributors. Comcast service areas cover 50 million
U.S. television households or about 45 percent of households nationwide, with nearly half of those households (23 million) subscribing to at least one Comcast service. Competitive effects also may be felt in other areas because Comcast's competitors serve territories outside its cable footprint. If Comcast can disadvantage these rivals, for example by raising their costs, competition will be reduced everywhere these competitors provide service reflecting these higher costs. Thus, the potential anticompetitive effects of the transaction could extend to almost all Americans.
The incumbent cable companies often dominate any particular market and typically hold well over 50 percent market shares within their franchise areas. For example, Comcast has market shares of 64 percent in Philadelphia, 62 percent in Chicago, 60 percent in Miami, and 58 percent in San Francisco (based on MVPD subscribers). Combined, the DBS providers account for approximately 31 percent of video programming subscribers nationwide, although their shares vary and may be lower in any particular local market. Although AT&T and Verizon have had great success and achieved penetration (i.e., the percentage of households to which a provider's service is available that actually buys its service) as high as 40 percent in the selected communities they have entered, they currently have limited expansion plans. Overbuilders serve an even smaller portion of the United States. 2. Competition From OVDs
OVDs are relatively recent entrants into the video programming distribution market. Their services are available to any consumer with high-speed Internet service sufficient to receive video of an acceptable quality. OVDs have increased substantially the amount of full-length professional content they distribute online. Viewership of video content distributed over the Internet has grown enormously and is expected to continue to grow. The number of adult Internet users who watch full-length television shows online is expected to increase from 41.1 million in 2008 to 72.2 million in 2011.\7\ The total number of unique U.S. viewers of video who watch full-length television shows online grew 21 percent from 2008 to 2009.\8\ OVD revenues also have increased dramatically. Revenue associated with video content delivered over the Internet to televisions is expected to grow from $2 billion in 2009 to over $17 billion in 2014.\9\
\7\ Reaching Online Video Viewers with Long-Form Content, eMarketer.com (July 26, 2010), http://www3.emarketer.com/
Article.aspx?R=1007830.
\8\ Id.
\9\ Robert Briel, Faster growth for web-to-TV video, Broadband
TV News (Aug. 17, 2010), http://www.broadbandtvnews.com/2010/08/17/ faster-growth-for-web-to-tv-video.
One reason for the dramatic growth of online distribution is the increased consumer interest in on-demand viewing, especially among younger viewers who have grown up with the Internet, and are accustomed to viewing video at a time and on a device of their choosing.\10\ In response to competition by OVDs, MVPDs increasingly are offering more on-demand choices.
\10\ See R. Thomas Umstead, Younger Viewers Watching More TV on the Web, Multichannel News (Apr. 12, 2010), http:// www.multichannel.com/article/451376-Younger_Viewers_Watching_
More_Television_On_The_Web.php (survey of more than 1,000 people shows 23 percent under the age of 25 watch most of their television online).
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OVD Business Models and Participants
Recognizing the enormous potential of OVDs, dozens of companies are innovating and experimenting with products and services that either distribute online video programming or facilitate such distribution.
New developments, products, and models are announced on almost a daily basis by companies seeking to satisfy consumer demand. A number of companies are committing significant resources to this industry.
OVDs provide content using a variety of different business models.
Some offer content on an ad-supported basis pursuant to which consumers pay nothing. One firm using this model is Hulu, which aggregates primarily current-season broadcast content from NBC, FOX, ABC, and others. Hulu has experienced substantial growth since its launch in 2008, reaching 39 million unique viewers by February 2010.\11\
\11\ Press Release, comScore Releases February 2010 U.S. Online
Video Rankings, Hulu Viewer Engagement Up 120 percent vs. Year Ago to 2.4 Hours of Video per Viewer in February (Apr. 13, 2010), http:/
/www.comscore.com/Press_Events/Press_Releases/2010/4/comScore_
February_2010_U.S._Online_Video_Rankings.
Netflix has pursued a different business model. It initially offered DVDs delivered by mail and then added unlimited streaming of a limited library of content over the Internet for a monthly subscription fee. Netflix has expanded its online library and introduced an
Internet-only subscription service. Netflix content primarily consists of relatively recent movies, older movies, and past-season television shows. Netflix recently announced a deal with premium cable network
EPIX for access to more movie
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content that it will distribute over the Internet.\12\ Netflix also has grown substantially in the last several years, from 7.5 million subscribers at the end of 2007 to 16.9 million in the third quarter of 2010.\13\
\12\ Netflix, Inc., Q3 10 Management's commentary and financial highlights, at 2 (Oct. 20, 2010), available at http:// files.shareholder.com/downloads/NFLX/1118542273x0x411049/157a4bc4- 4cad-4d7b-9496-b59006d73344/
Q310%20Management%27s%20commentary%20and%20%20highlights.pdf.
\13\ Netflix, Inc., Form 10-K at 32 (Feb. 22, 2010); Press
Release, Netflix, Inc. Netflix Announces Q3 2010 Financial Results, at 1 (Oct 20, 2010), available at http://files.shareholder.com/ downloads/NFLX/1118542273x0x411037/5a757dd5-b423-40d7-bb60- 3418356e582e/3Q10_Earnings_Release.pdf.
Apple also is experimenting with different business models for video programming distribution. For several years it has offered content on an electronic sell-through (``EST'') basis through its Apple iTunes Store. Customers pay a per-transaction fee to buy television shows and movies and download them onto various electronic devices
(e.g., iPod). Apple recently announced a service that allows consumers to rent television content on a per-transaction basis (e.g., $0.99 per show) and view it for a limited time. Other major companies are offering or planning to offer OVD services.\14\
\14\ For example, Google recently launched GoogleTV, a device that enables viewers simultaneously to search the Internet and their
MVPD service for content, and to switch back and forth on their televisions between content delivered over the Internet and content delivered by their MVPD. Press Release, Google, Industry Leaders
Announce Open Platform to Bring Web to TV (May 20, 2010), http:// www.google.com/intl/en/press/pressrel/20100520_googletv.html.
Walmart recently acquired VUDU, an OVD service, and is making content available for EST and rental to VUDU-enabled devices. Press
Release, Walmart Announces Acquisition of Digital Entertainment
Provider, VUDU (Feb. 22, 2010), http://www.walmartstores.com/ pressroom/news/9661.aspx. Amazon is reportedly developing an OVD service that allows Amazon service subscribers to stream television and movie content over the Internet. Nick Wingfield & Sam Schechner,
No Longer Tiny, Netflix Gets Respect--and Creates Fear, Wall St. J.
(Dec. 6, 2010), http://online.wsj.com/article/
SB10001424052748704493004576001781352962132.html. Sears and Kmart recently announced the launch of an online video store, called
Alphaline, which sells and rents movies and television shows. Paul
Bond, Sears, Kmart launch Alphaline online video store,Reuters (Dec. 30, 2010), http://www.reuters.com/article/idUSTRE6BT03C20101230.
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The Impact of OVDs
Some of these OVD products and services undoubtedly will be viewed by consumers as closer substitutes for MVPD services than others. The extent to which an OVD service has the potential to become a better substitute for MVPD service will depend on a number of factors, such as the OVD's ability to obtain popular content, its ability to protect the licensed content from piracy, its financial strength, and its technical capabilities to deliver high-quality content. Moreover, as noted previously, OVDs' future competitive significance depends, in part, on robust broadband capacity. Accordingly, the competitive significance of
OVDs is fostered by protecting broadband providers' economic incentives to upgrade and improve their broadband infrastructure, and obtain fair returns on that investment.
Today, some consumers regard OVDs as acceptable substitutes for at least a portion of their traditional video programming distribution services. These consumers buy smaller content packages from traditional distributors, decline to take certain premium channels, or purchase fewer VOD offerings, and instead watch that content online, a practice known as ``cord-shaving.'' A small but growing number of MVPD customers are also ``cutting the cable cord'' completely in favor of OVDs. These customers may rely on an individual OVD or may view video content from a number of OVDs (e.g., Hulu ad-supported service, Netflix subscription service, Apple EST service) as a replacement for their MVPD service.
When measured by the number of customers who are cord-shaving or cord-cutting, OVDs currently have a de minimis share of the video programming distribution market. Their current market share, however, greatly understates their potential competitive significance in this market. Whether viewers buy individual or a combination of OVD services, OVDs are likely to continue to develop into better substitutes for MVPD video services. Evolving consumer demand, improving technology (e.g., higher Internet access speeds, better compression technologies to improve picture quality, improved digital rights management to combat piracy), the increased choice of viewing devices, and advertisers' increasing willingness to place their ads on the Internet likely will make OVDs stronger competitors to MVPDs for an increasing number of viewers.\15\
\15\ Historically, OTA distribution of broadcast network content has not served as a significant competitive constraint on MVPDs because of the limited number of channels offered. In addition, OTA distribution likely will not expand in the future because no new broadcast networks are likely to be licensed for distribution. Thus,
OTA is unlikely to become a more significant video programming distributor. By contrast, OVDs are expanding rapidly and have the potential to provide increased and more innovative viewing options in the future.
The development of the video programming distribution market--and in particular the success of OVDs--may influence any future analysis of consolidation in this market. Such analysis would follow standard merger evaluation principles and consider not only the role of OVDs, but also factors such as the extent to which the merging firms' offerings are close substitutes and compete directly. In this case,
Defendants' own assessments--as reflected in numerous internal documents and their executives' testimony--of the importance of OVDs and their potential to alter dramatically the existing competitive landscape are particularly important to determining the relevant product market. c. Comcast's and Other MVPDs' Reactions to the Growth of OVDs
Comcast and other MVPDs recognize the threat posed to their video distribution business from the growth of OVDs. Many internal documents reflect Comcast's assessment that OVDs are growing quickly and pose a competitive threat to traditional forms of video programming distribution. In response to this threat, Comcast has taken significant steps to improve the quality of Fancast, its own Internet video service. Among other things, Comcast has attempted to obtain additional--and at times exclusive--content from programmers, and has made Fancast's user interface easier to navigate. Comcast also has increased the quality and quantity of the VOD content it offers as an adjunct to its traditional cable service.
In addition, Comcast has created and implemented an
``authentication'' system that enables its existing cable subscribers to view some video content over the Internet if the subscriber already pays for and receives the same content from Comcast through its traditional cable service. Internal documents expressly acknowledge that ``authentication'' is Comcast's and other MVPDs' attempt to counter the perceived threat posed by OVDs.
Comcast's and other MVPDs' reactions to the emergence of OVDs demonstrate that they view OVDs as a future competitive threat and are adjusting their investment decisions today in response to that threat.
Because OVDs today affect MVPDs' decisions, they are appropriately treated as participants in the market. Market definition considers future substitution patterns, and the investment decisions of MVPDs are strong evidence of market participants' view of the increased likelihood of consumer substitution
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between MVPD and OVD services.\16\ This effect on investment is significant and could be diminished or even lost altogether if Comcast, through the JV, acquires the ability to delay or deter the development of OVDs.
\16\ Cf. U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal
Merger Guidelines Sec. 5.2 (Aug. 19, 2010), available at http:// www.justice.gov/atr/public/guidelines/hmg-2010.html (``However, recent or ongoing changes in market conditions may indicate that the current market share of a particular firm either understates or overstates the firm's future competitive significance. The Agencies consider reasonably predictable effects or ongoing changes in market conditions when calculating and interpreting market share data.'').
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The Anticompetitive Effects of the Proposed Transaction
Antitrust law, including Section 7 of the Clayton Act, protects consumers from anticompetitive conduct, such as firms' acquisition of the ability to raise prices above levels that would prevail in a competitive market. It also ensures that firms do not acquire the ability to stifle innovation. Vertical mergers are those that occur between firms at different stages of the chain of production and distribution. Vertical mergers have the potential to harm competition by changing the merged firm's ability or incentives to deal with upstream or downstream rivals. For example, the merger may give the vertically integrated entity the ability to establish or protect market power in a downstream market by denying or raising the price of an input to downstream rivals that a stand-alone upstream firm otherwise would sell to those downstream firms. The merged firm may find it profitable to forego the benefits of dealing with its rivals in order to hobble them as competitors to its own downstream operations.
A merged firm can more readily harm competition when its rivals offer new products or technologies whose competitive potential is evolving. Nascent competitors may be relatively easy to quash. For example, denying an important input, such as a popular television show, to a nascent competitor with a small customer base is much less costly in terms of foregone revenues than denying that same show to a more established rival with a larger customer base. Even if a vertical merger only delays nascent competition, an increase in the duration of a firm's market power can result in significant competitive harm. The application and enforcement of antitrust law is appropriate in such situations because promoting innovation is one of its important goals.\17\ The crucial role of innovation has led at least one noted commentator to argue that restraints on innovation ``very likely produce a far greater amount of economic harm than classical restraints on competition,'' and thus deserve special attention.\18\ By quashing or delaying the progress of rivals that attempt to introduce new products and technologies, the merged firm could slow the pace of innovation in the market and thus harm consumers.\19\
\17\ U.S. Dep't of Justice & Fed. Trade Comm'n, Antitrust
Guidelines for the Licensing of Intellectual Property Sec. 1 (Apr. 1995), available at http://www.justice.gov/atr/atr/public/ guidelines/0558.htm (``The antitrust laws promote innovation and consumer welfare by prohibiting certain actions that may harm competition with respect to either existing or new ways of serving consumers.''); see also 19A Phillip E. Areeda et al., Antitrust Law,
] 1902a (2d ed. 2005) (``Our capitalist economic system places a very strong value on competition, not only to reduce costs but also to innovate new products and processes.'').
\18\ Herbert Hovenkamp, Restraints on Innovation, 29 Cardozo L.
Rev. 247, 253-54, 260 (2007) (``[N]o one doubts [the] basic conclusion that innovation and technological progress very likely contribute much more to economic growth than policy pressures that drive investment and output toward the competitive level.''); see also 4B Phillip E. Areeda et al., Antitrust Law, ] 407a (3d ed. 2007); Willow A. Sheremata, Barriers to innovation: a monopoly, network externalities, and the speed of innovation, 42 Antitrust
Bull. 937, 938 (1997) (```[I]n the long run it is dynamic performance that counts.' The speed of innovation is important to social welfare.'' (quoting F.M. Scherer & David Ross, Industrial
Market Structure & Economic Performance 613 (3d ed. 1990))).
\19\ See Sheremata, supra note 18, at 944 (``When owners of current technology raise artificial barriers to entry of new technology, opportunities for innovation decline to the detriment of consumers.'').
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The Importance of Access to NBCU Content
Generally, programmers want to distribute their content in multiple ways to maximize viewers' exposure to the content and the impact of any advertising revenues. Likewise, distributors must be able to license a sufficient quantity and quality of content to create a compelling video programming service. A distributor also must gain access to a sufficient variety of content from different sources. This
``aggregation'' of a variety of content is important to a distributor's ability to succeed.
NBCU content is extremely valuable to video programming distributors. NBC is one of the original three broadcast networks and has decades of history and brand name recognition. It carries general interest content that appeals to a wide variety of viewers. Surveys routinely rank the NBC network as one of the top four of all broadcast and cable networks. Similarly, NBCU's USA Network is highly valued and has been rated the top cable network for four of the past five years.
Many of NBCU's other networks--Bravo, CNBC, MSNBC, SyFy--also are highly rated and valued by their audiences.
The proposed transaction would give Comcast, through the JV, control of an important portfolio of current and library content. The ratings of each NBCU network are based on the popularity of the particular slate of shows currently on that network and can increase or decrease significantly from one television season to the next based on the gain or loss of hit shows. NBCU also has the ability to switch programming from one network to another, or otherwise make popular content from one network available to another. Through the JV, Comcast would gain the ability to impair emerging OVD competition by withholding or raising the prices of individual NBCU shows, or of linear feeds of one or more NBCU cable or broadcast networks. It is reasonable to examine the competitive impact of withholding NBCU content in the aggregate, rather than analyzing the value of any individual show or network to a competitor, because an aggregate withholding strategy would have the greatest impact on Comcast's downstream rivals. 2. The Proposed Transaction Increases the JV's Incentive and Ability To
Harm Competitors a. Ability and Incentive To Harm Rival MVPDs
If the proposed transaction is approved, Comcast through the JV will gain control of NBCU's content, including a substantial amount of valuable broadcast and cable programming. Competing MVPDs will be forced to obtain licenses for NBCU content from their rival, Comcast.
Unlike a stand-alone programmer, Comcast's pricing and distribution decisions will take into account the impact of those decisions on the competitiveness of rival MVPDs. As a result, Comcast will have a strong incentive to disadvantage its competitors by denying them access to valuable programming or raising their licensing fees above what a stand-alone NBCU would have found it profitable to charge.
A stand-alone programmer typically attempts to maximize the combined license fee and advertising revenues from its programming by making its content available in multiple ways. The JV would continue to value widespread distribution of NBCU content, but it also would likely consider how access to that content makes Comcast's MVPD rivals better competitors. This could lead the JV to withhold content
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altogether or, more likely, to insist on higher fees for the NBCU content from Comcast's MVPD competitors. Whether Comcast's rival MVPDs refuse to purchase the programming or agree to pay the higher fees,
Comcast would benefit from weakening its MVPD rivals. Likewise, high licensing fees charged to other MVPDs and OVDs will also induce customers to switch to (or stay with) Comcast. These higher licensing fees will be reflected either in higher subscriber fees or, in the case of MVPDs building alternative cable distribution infrastructures, a smaller level of investment and, consequently, a smaller coverage area for the MVPD competing with Comcast. In either case, higher licensing fees will reduce pricing pressure on Comcast's MVPD business and increase its ability to raise prices to its subscribers.
By disadvantaging competitors in this manner, Comcast through the
JV will cause some of its rivals' customers to seek an alternative MVPD provider. Many of these dissatisfied customers likely will become
Comcast subscribers, making it profitable for Comcast and the JV to increase licensing fees above the stand-alone NBCU levels. Those increased fees likely will lead to higher prices for subscribers of other MVPDs and perhaps further migration by those subscribers to
Comcast.
Licensing disputes in which a major broadcast network has pulled a network signal from an MVPD have resulted in the MVPD's loss of significant numbers of subscribers to its competitors. Through the formation of the JV, Comcast gains the rights to negotiate on behalf of the seven O&Os that operate in areas where it is the dominant cable company. It also becomes the owner of the NBC network, which may give it leverage to seek the rights to negotiate on behalf of NBCU's NBC network affiliate television stations, or at least the ability to influence affiliate negotiations, for retransmission consent rights in other areas of the United States. Comcast, through the JV, can withhold or raise the price of the NBC network to its rivals, thereby causing customers to shift away from the rival. Other NBCU programming also is important to consumers, and similar switching behavior could result if the JV were to withhold it from Comcast's rival MVPDs.
Comcast has engaged in such strategies in the past. For example,
Comcast has withheld its RSN in Philadelphia in order to discriminate against, and thereby disadvantage, DBS providers against which Comcast competes in that city. The DBS providers' market shares are lower and
Comcast's subscription fees are higher in Philadelphia than in comparable markets. This appears to have been a profitable strategy for
Comcast because the overall benefit to its cable business of retaining subscribers seems to have outweighed the substantial losses associated with failing to earn licensing fees for the withheld RSN from DBS companies.
Post-transaction, Comcast's rival MVPDs would realize that, unlike the stand-alone NBCU, the JV will set higher licensing fees for NBCU that take into consideration Comcast's business profits. Some MVPDs might find it unprofitable to carry the programming at the prices the
JV could command. Other MVPDs might agree to the JV's increased prices for the NBCU content given the likelihood that they would lose a large number of their subscribers if they did not carry the NBCU content.
Lowering the profitability of Comcast's MVPD rivals also would weaken the incentives of some existing and future entrants to build out their systems, especially in areas Comcast currently serves, weakening the competitive constraints faced by Comcast. This weakened state of competition would allow Comcast, in turn, to decrease its investments and innovation to improve its own offerings. Higher subscription fees for Comcast services or decreased investment in improving their quality are less likely to induce customer switching to Comcast's MVPD rivals where those rivals are unable to match its programming or prices. As a result, Comcast could reinforce and even increase its dominant market share of video programming distribution in all areas of the country in which it operates. b. Incentive and Ability To Harm OVDs
Comcast, through the JV, also could discriminate against competing
OVDs in similar ways, thereby diminishing the competitive threat posed by individual OVDs and impeding the development of OVDs, generally. The
JV could charge OVDs higher content fees than the stand-alone NBCU would have charged, or impose different terms for NBCU content than
Comcast negotiates for itself. The JV also could withhold NBCU content completely, thereby diminishing OVDs' ability to compete for video programming distribution customers, again to Comcast's benefit. Either situation could delay significantly the development of OVDs as a competitive alternative to traditional video programming distribution services.
Over the last several years, NBCU has been one of the content providers most willing to experiment with different methods of online distribution. It was a driving force behind the creation and success of
Hulu, and is now a partner in, and major content contributor to, the recently launched Hulu Plus, a subscription version of Hulu. Prior to the JV announcement, NBCU entered into several contracts with OVDs to distribute its content online through Apple iTunes and Amazon, and on a subscription basis through Netflix. Allowing the JV to proceed removes
NBCU content from the control of a company that supported the development of OVDs and places it in the control of a company that views OVDs as a serious competitive threat.
Finally, Comcast, through the JV, would gain control of NBCU's governance rights and 32 percent ownership interest in Hulu, a current and future competitor to Comcast's MVPD services. Hulu has achieved significant success since its launch in early 2008.
Each of the media partners in Hulu, including NBCU, contributes content to Hulu and holds three seats on Hulu's Board of Directors.
Significantly, any important or strategic decisions by Hulu require the unanimous approval of all members of the Board. Comcast's acquisition of NBCU's interest in Hulu would give it the ability to hamper Hulu's strategic and competitive development by refusing to agree to major actions by Hulu, or by blocking Hulu's access to NBCU content. 3. How the Formation of the JV Changes Comcast's Incentives and
Abilities
Post-transaction, the JV would gain increased bargaining leverage sufficient to negotiate higher prices or withhold NBCU content from
Comcast's MVPD competitors. Comcast's rival distributors would have to pay the increased prices or not carry the programming. In either case, the MVPDs likely would be less effective competitors to Comcast, and
Comcast would be able to delay or otherwise substantially impede the development of OVDs as alternatives to MVPDs.
All of these activities could have a substantial anticompetitive effect on consumers and the market. Because Comcast would face less competition from other video programming distributors, it would be less constrained in its pricing decisions and have a reduced incentive to innovate. As a result, consumers likely would be forced to pay higher prices to obtain their video content or receive fewer benefits of innovation. They also would have fewer choices in the types of content and providers to which they
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would have access, and there would be lower levels of investment, less experimentation with new models of delivering content, and less diversity in the types and range of product offerings. 4. Entry Is Unlikely To Reverse the Anticompetitive Effects of the JV
Over the last decade, Comcast and other traditional video distributors benefited from an industry with limited competition and increasing prices,\20\ in part because successful entry into the traditional video programming distribution business is difficult and requires an enormous investment to create a distribution infrastructure such as building out wireline facilities or obtaining spectrum and launching satellites. Accordingly, additional entry into wireline or
DBS distribution is not likely in the foreseeable future.\21\ Telcos have been willing to incur some of the enormous costs to modify their existing telephone infrastructure to distribute video, but only in certain areas, and they have recently indicated that further expansion will be limited for the foreseeable future.\22\
\20\ See, e.g., Report on Cable Industry Prices, In re
Implementation of Section 3 of the Cable Television Consumer
Protection and Competition Act of 1992, 24 F.C.C.R. 259, ] 2 & chart 1 (rel. Jan. 16, 2009), http://hraunfoss.fcc.gov/edocs_public/ attachmatch/DA-09-53A1.pdf (data showing price of expanded basic service increased more than three times the consumer price index
(CPI) between 1995 and 2008).
\21\ Similarly, it is unlikely that an entrant would attempt to provide a traditional MVPD service with wireless technology, particularly given the difficulty in acquiring spectrum and the costs and risks of constructing such a system. See generally U.S.
Dep't of Justice, Ex Parte Submission, In re Economic Issues in
Broadband Competition, A National Broadband Plan for our Future, FCC
GN Docket No. 09-51, at 8-11 (filed Jan. 4, 2010), available at http://www.justice.gov/atr/public/comments/_.htm.
\22\ See, e.g., Transcript, Verizon at Credit Suisse Group
Global Media and Communications Conference, at 11 (Mar. 8, 2010), available at http://investor.verizon.com/news/20100308/_;20100308-- transcript.pdf.
OVDs, therefore, represent the most likely prospect for successful competitive entry into the existing video programming distribution market. However, they face the difficulty of obtaining access to a sufficient amount of content to become viable distribution businesses.
In addition, OVDs rely upon the infrastructure of others, including
Comcast, to deliver service to their customers. After the JV is formed,
Comcast will control some of the most significant content needed by
OVDs to successfully position themselves as a replacement for traditional video distribution providers. 5. Any Efficiencies Arising From the Deal Are Negligible or Not Merger-
Specific
The Department considers expected efficiencies in determining whether to challenge a vertical merger. The potential anticompetitive harms from a proposed transaction are balanced against the asserted efficiencies of the transaction. The evidence does not show substantial efficiencies from the transaction.
In particular, the JV is unlikely to achieve substantial savings from the elimination of double marginalization. Double marginalization occurs when two independent companies at different points in a product's supply chain each extract a profit margin above marginal cost. Because each firm in the supply chain treats the other firm's price (in lieu of its marginal cost) as a cost of producing the final good, each firm finds it profitable to produce a lower output than the firms would have produced had they accurately accounted for the social cost of producing the output. This ultimately results in a lower output
(and a higher price to consumers) than would have occurred if the product had been produced by a combined firm. Despite a higher price, the lower output from double marginalization ultimately results in lower total profits for the entire supply chain.
Vertical mergers often are procompetitive because they enable the merged firm to properly account for costs when determining output and setting a final product price. The combined firm no longer treats the profit of the other firm as part of the cost of production. Because the combined firm faces lower marginal costs, it may find it profitable to expand output and reduce the final product price. Lower marginal costs may result in better service, greater product quality or innovation, or other improvements.
In certain industries, however, including the one at issue here, vertical mergers are far less likely to reduce or eliminate double marginalization. Documents, data, and testimony obtained from
Defendants and third parties demonstrate that much, if not all, of any potential double marginalization is reduced, if not completely eliminated, through the course of contract negotiations between programmers and distributors over quantity and penetration discounts, tiering requirements, and other explicit and verifiable conditions.
Other efficiencies claimed by Comcast are not specific to this transaction or not verifiable, or both. It is unlikely that the efficiencies associated with this transaction would be sufficient to undo the competitive harm that otherwise would result from the JV.
III. Explanation of the Proposed Final Judgment
The proposed Final Judgment ensures that Comcast, through the JV, will not impede the development of emerging online video distribution competition by denying access to the JV's content to such competitors.
The proposed Final Judgment also contains provisions that protect
Comcast's traditional video distribution competitors. The proposed
Final Judgment thereby protects consumers by eliminating the likely anticompetitive effects of the proposed transaction.
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The Proposed Final Judgment Protects Emerging Online Video
Competition 1. The Proposed Final Judgment Ensures That OVDs Have Access to the
JV's Video Programming
The proposed Final Judgment requires the JV to license its broadcast, cable, and film content to OVDs on terms comparable to those in similar licensing arrangements with MVPDs or OVDs. It provides two options through which an OVD will be able to obtain the JV's content.
Under the first option, set forth in Section IV.A of the proposed
Final Judgment, the JV must license linear feeds of video programming to any requesting OVD on terms that are economically equivalent to the terms on which the JV licenses that programming to MVPDs. Subject to some exceptions, the JV must make available to an OVD any channel or bundle of channels, and all quality levels and VOD rights, it provides to any MVPD with more than one million subscribers.
The terms of the JV's license with the OVD need not match precisely any existing license between the JV and the MVPD, but it must reasonably approximate, in the aggregate, an existing licensing agreement. That approximation must account for factors, such as advertising revenues and any technical and economic limitations of the
OVD seeking a license.
The first option ensures that the JV will not be able to use its control of content to impede competitive pressure exerted on traditional forms of video programming distribution from OVDs that choose to offer linear channels and associated VOD content. The proposed Final Judgment uses Defendants' own contracts with MVPDs, including MVPDs that do not compete with
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Comcast, as proxies for the content and terms the JV would be willing to provide to distributors if it did not have the incentive or ability to disadvantage them in order to maintain customers in or drive customers to Comcast's service.
Under the second option, set forth in Section IV.B, the proposed
Final Judgment requires the JV to license to an OVD, broadcast, cable, or film content comparable in scope and quality to the content the OVD receives from one of the JV's programming peers. For example, if an OVD receives each episode of five primetime television series from CBS for display in a subscription VOD service within 48 hours of the original airing, the JV must provide the OVD a comparable set of NBC broadcast television programs, as measured by volume and economic value, for display during the same subscription VOD window. The requirement applies to all JV content, even non-NBCU content, in order to ensure that the JV cannot undermine the purposes of the proposed Final
Judgment by shifting content from one network to another.
While the first option ensures that Comcast, through the JV, will not disadvantage OVD competitors in relation to MVPDs, the second option ensures that the programming licensed by the JV to OVDs will reflect the licensing trends of its peers as the industry evolves.
Because the OVD industry is still developing, the contracts of the JV's peers also provide an appropriate benchmark for determining the terms and conditions under which content should be licensed to OVDs. The programming peers include the owners of the three major non-NBC broadcast networks (CBS, FOX, and ABC), the largest cable network groups (including News Corporation, Time Warner, Inc., Viacom, and The
Walt Disney Company), and the six largest production studios (including
News Corporation, Viacom, Sony Corporation of America, Time Warner
Inc., and The Walt Disney Company).
If an OVD and the JV are unable to reach an agreement for carriage of the JV's programming under either of these options, an OVD may apply to the Department for permission to submit its dispute to commercial arbitration in accordance with Section VII of the proposed Final
Judgment. The FCC Order requires the JV to license content on reasonable terms to OVDs and includes an arbitration mechanism for resolution of disputes over access to programming. The FCC is the expert communications industry agency, and the Department worked very closely with the FCC in designing effective relief in this case. For so long as commercial arbitration is available for resolution of disputes in a timely manner under the FCC's rules and orders, the Department will ordinarily defer to the FCC's commercial arbitration process to resolve such disputes. OVDs are nascent competitors, however, and consistent with the Department's competition law enforcement mandate, the Department reserves the right, in its sole discretion, to permit arbitration pursuant to Section VII to advance the competitive objectives of the proposed Final Judgment. Although the Department may seek enforcement of the Final Judgment through traditional judicial process, the arbitration process will help ensure that OVDs can obtain content from the JV at a competitive price, without involving the
Department or the Court in expensive and time-consuming litigation.\23\
To support the proposed Final Judgment's requirement that the JV license its programming to OVDs and assist the Department's oversight of this nascent competition, Comcast and NBCU are required, pursuant to
Sections IV.M and IV.N, to maintain copies of agreements the JV has with any OVD as well as the identities of any OVD that has requested video programming from the JV.
\23\ Under Section VI of the proposed Final Judgment, Defendants are required to license only video programming subject to their management or control or over which Defendants possess the power or authority to negotiate content licenses. NBCU has management rights in The Weather Channel, including the right to negotiate programming contracts on its behalf. NBCU currently is not exercising these rights. However, Section V.F provides that if the JV exercises them or otherwise influences The Weather Channel, this programming will be covered under the requirements of the proposed Final Judgment.
Similarly, Section V.E exempts The Weather Channel, TV One, FearNet, the Pittsburgh Cable News Channel, and Hulu from the definitions of
``Defendants'' and other related terms unless the Defendants gain control over those channels or the ability to negotiate or influence carriage contracts for those channels.
-
The Proposed Final Judgment Prevents Comcast, Through the JV, From
Adversely Affecting Hulu
Section IV.D of the proposed Final Judgment requires Defendants to relinquish their voting and other governance rights in Hulu, and
Section IV.E prohibits them from receiving confidential or competitively sensitive information concerning Hulu. As noted above,
Hulu is one of the most successful OVDs to date. Comcast has an incentive to prevent Hulu from becoming an even more attractive avenue for viewing video programming because Hulu would then exert increased competitive pressure on Comcast's cable business. If the proposed transaction were to be consummated without conditions, Defendants would hold seats on Hulu's Board of Directors and could exercise their voting and other governance rights to compromise strategic and competitive initiatives Hulu may wish to pursue. Requiring Defendants to relinquish their voting and governance rights in Hulu, and barring access to competitively sensitive information, will prevent Comcast, through the
JV, from interfering with Hulu's competitive and strategic plans.
At the same time, NBCU should not be permitted to abandon its commitments to provide Hulu video programming under agreements currently in place and deny Hulu customers the value of the JV's content. Therefore, Section IV.G of the proposed Final Judgment requires the JV to continue to supply Hulu with content commensurate with the supply of content provided to Hulu by its other media owners. 3. The Proposed Final Judgment Prohibits Defendants From Discriminating
Against, Retaliating Against, or Punishing Video Programmers and OVDs
The proposed Final Judgment protects the development of OVDs by prohibiting Defendants from engaging in certain conduct that would deter video programmers and OVDs from contracting with each other.
Section V.A of the proposed Final Judgment prohibits Defendants from discriminating against, retaliating against, or punishing any content provider for providing programming to any OVD. Section V.A also prohibits Defendants from discriminating against, retaliating against, or punishing any OVD for obtaining video programming, for invoking any provisions of the proposed Final Judgment or any FCC rule or order, or for furnishing information to the Department concerning Defendants' compliance with the proposed Final Judgment. 4. The Proposed Final Judgment Prohibits Defendants From Limiting
Distribution to OVDs Through Restrictive Licensing Practices
The proposed Final Judgment further protects the development of
OVDs by preventing Comcast from using its influence either as the nation's largest MVPD or as the licensor, through the JV, of important video programming to enter into agreements containing restrictive contracting terms. Video programming agreements often grant
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licensees preferred or exclusive access to the programming content for a particular time period. Such exclusivity provisions can be competitively neutral, but also can have either pro- or anticompetitive purposes or effects. Sections V.B and V.C of the proposed Final
Judgment set forth broad prohibitions on restrictive contracting practices, including exclusives, but then delineate a narrowly tailored set of exceptions to those bans. These provisions ensure that Comcast, through the JV, cannot use restrictive contract terms to harm the development of OVDs and, at the same time, preserve the JV's incentives to produce and exploit quality programming.
The video programming distribution industry frequently uses exclusive contract terms that can be procompetitive. For instance, as discussed above, content producers often sequence the release of their content to various distribution platforms, a practice known as
``windowing.'' These windows of exclusivity enable a content producer to maximize the revenues it earns on its content by separating customers based on their willingness to pay and effectively increasing the price charged to the customers that place a higher value on receiving content earlier. Exclusivity also encourages the various distributors, such as cable companies, to promote the content during a distribution window by assuring the distributor that the content will not be available through other distribution channels at a lower price.
This ability to price discriminate across types of customers and increase promotion of the content increases the profitability of producing quality programming and encourages the production of more high-quality programming than otherwise would be the case. Exclusivity also may help a new competitor gain entry to a market by encouraging users to try a service they would not otherwise consider. For example, an OVD may desire a limited exclusivity window in order to market its exclusive access to certain programming provided by its service. This unique content makes the service more attractive to consumers and gives them a reason to replace their existing service or try something new.
However, exclusivity restrictions also can serve anticompetitive ends. As a cable company, Comcast has the incentive to seek exclusivity provisions that would prevent content producers from licensing their content to alternative distributors, such as OVDs, for a longer period than the content producer ordinarily would find economically reasonable, in order to hinder OVD development. If Comcast could use exclusivity provisions to prevent the JV's peers from licensing content to OVDs that otherwise would obtain the rights to offer the programming, other provisions of the proposed Final Judgment designed to preserve and foster OVD competition could be effectively nullified.
The proposed Final Judgment strikes a balance by allowing reasonable and customary exclusivity provisions that enhance competition while prohibiting those provisions that, without any offsetting procompetitive benefits, hinder the development of effective competition from OVDs. Section V.B of the proposed Final Judgment prohibits the JV from entering into any agreement containing terms that forbid, limit, or create economic incentives for the licensee to limit distribution of the JV's video programming through OVDs, unless such terms are common and reasonable in the industry. Evidence of what is common and reasonable industry practice includes, among other things,
Defendants' contracting practices prior to the date that the JV was announced, as well as practices of the JV's video programming peers.
This provision allows the JV to employ those pricing and contractual strategies used by its peers to maximize the value of the content it produces, while limiting Comcast's incentives, through the JV, to craft unusually restrictive contractual terms in the JV's contracts with third parties, the purpose of which is to limit the access of OVDs to content produced by the JV. Section V.C of the proposed Final Judgment prohibits Comcast from entering into or enforcing agreements for carriage of video programming on its cable systems that forbid, limit, or create incentives that limit the provision of video programming to
OVDs. Section V.C establishes three narrow exceptions to this broad prohibition. First, Comcast may obtain a 30-day exclusive from free online display if Comcast pays for the video programming. Second,
Comcast may enter into an agreement in which the programmer provides content exclusively to Comcast, and to no other MVPD or OVD, for 14 days or less. Third, Comcast may condition carriage of programming on its cable system on terms which require it to be treated in material parity with other similarly situated MVPDs, except to the extent such terms would be inconsistent with the purpose of the proposed Final
Judgment. These provisions are designed to ensure that Comcast, either alone or in conjunction with the JV, cannot use existing or new contracts to dictate the terms of the video programming agreements that the JV's peers are able to offer OVDs, thereby hindering the development of OVDs. 5. The Proposed Final Judgment Prohibits Unreasonable Discrimination in
Internet Broadband Access
Section V.G of the proposed Final Judgment requires Comcast to abide by certain restrictions on the operation and management of its
Internet facilities. Without these restrictions Comcast would have the ability and the incentive to undermine the effectiveness of the proposed Final Judgment. Comcast is the dominant high-speed ISP in much of its footprint and therefore could disadvantage OVDs in ways that would prevent them from becoming better competitive alternatives to
Comcast's video programming distribution services. OVDs are dependent upon ISPs' access networks to deliver video content to their subscribers. Without the protections secured in the proposed Final
Judgment, Comcast would have the ability, for instance, to give priority to non-OVD traffic on its network, thus adversely affecting the quality of OVD services that compete with Comcast's own MVPD or OVD services. Comcast also would be able to favor its own services by not subjecting them to the network management practices imposed on other services.
Section V.G.1 of the proposed Final Judgment prohibits Comcast from unreasonably discriminating in the transmission of lawful traffic over its Internet access service, with the proviso that reasonable network management practices do not constitute unreasonable discrimination.
This provision requires Comcast to treat all Internet traffic the same and, in particular, to ensure that OVD traffic is treated no worse than any other traffic on Comcast's Internet access service, including traffic from Comcast and NBCU sites. Similarly, Section V.G.2 prohibits
Comcast from excluding their own services from any caps, tiers, metering, or other usage-based billing plans, and requires them to ensure that OVD traffic is counted in the same way as Comcast's traffic, and that billing plans are not used to disadvantage an OVD in favor of Comcast. Many high-speed Internet providers are evaluating usage-based billing plans. These plans may more efficiently apportion infrastructure costs across users, offer lower-cost service to low- volume subscribers, or divert high-volume usage to non-peak hours.
However, these plans also have the potential to increase the cost of high-volume services, such as video distribution, that may compete with an MVPD's video services. Section V.G.2
Page 5457
addresses this concern by ensuring that under these plans Comcast must treat other OVD services just as it treats its own Internet-based video services.
Specialized Services are offered to consumers over the same last- mile facilities as Internet access services, but are separate from the public Internet. The potential benefits of Specialized Services include the facilitation of services that might not otherwise be technically or economically feasible on current networks and the development of new and innovative services, such as services that may compete directly with Comcast's own MVPD offerings. If Comcast were to offer online video services through Specialized Services, however, it could effectively avoid the prohibitions in Sections V.G.1 and V.G.2.
Sections V.G.3 and V.G.4 recognize both the potential benefits and the risks of Specialized Services and strike a balance to protect the beneficial development of these services while preventing Comcast from using them anticompetitively to benefit its own content. Section V.G.3 prohibits Comcast from offering Specialized Services that are comprised substantially or entirely of the JV's content. Section V.G.4 requires
Comcast to allow any OVD access to a Specialized Service if other OVDs, including Comcast, are being offered access. Together, these two provisions ensure that OVDs will have access to any Specialized Service
Comcast may offer that includes comparable services.
Finally, Section V.G.5 ensures that Comcast will maintain its public Internet access service at a level that typically would allow any user on the network to download content from the public Internet at speeds of at least 12 megabits per second in markets where it has deployed DOCSIS 3.0. The requirement to maintain service at this speed may be adjusted by the Court upon a showing that other comparable high- speed Internet access providers offer higher or lower speeds. These speeds are sufficient to ensure that Comcast's Internet access services can support the development of OVDs as well as other services that are potentially competitive with Comcast's own offerings.
In interpreting Section V.G and the terms used therein, the
Department will be informed by the FCC's Report and Order, In re
Preserving the Open Internet Broadband Industry Practices, GN Docket
No. 90-191 & WC Docket No. 07-52, adopted December 21, 2010.
-
-
The Proposed Final Judgment Preserves Traditional Video Competition
A number of FCC orders issued in prior mergers established a commercial arbitration process for resolution of disputes over access to broadcast network programming and regional sports networks. The FCC
Order approving this transaction requires the JV to license all of its programming to MVPDs, including its cable networks, and includes an arbitration mechanism that contains several enhancements to its existing commercial arbitration process when licensing disputes between
Defendants and other MVPDs arise.\24\ The Department believes that these enhancements, combined with the FCC's experience in MVPD arbitration disputes, should protect MVPDs' access to the JV's programming without need of another commercial arbitration mechanism for MVPDs under this proposed Final Judgment.
\24\ For example, the FCC Order allows an MVPD claimant to demand arbitration of programming on a stand-alone basis in certain circumstances. It also allows a claimant whose contract with the JV has expired to continue to carry the JV's programming during the pendency of the dispute, subject to a true-up. The FCC Order also contains further modifications to the arbitration process relating to smaller MVPDs.
In addition to the protections contained in the FCC Order, the proposed Final Judgment, in Section V.A, prohibits Defendants from discriminating against, retaliating against, or punishing any MVPD for obtaining video programming, for furnishing any information to the
United States about any noncompliance with the proposed Final Judgment, or for invoking the arbitration provisions of the FCC Order. Section
V.D also prevents Defendants from requiring or encouraging their local broadcast network affiliates to deny MVPDs the right to carry the local network signals. To aid the enforcement of this prohibition, pursuant to Sections IV.J and IV.K, Comcast and NBCU are required to maintain not only their network affiliate agreements, but also all documents discussing whether any of their affiliates has withheld or threatened to withhold retransmission consent from any MVPD.
-
Term of the Proposed Final Judgment
Section XI of the proposed Final Judgment provides that the Final
Judgment will expire seven years from the date of entry unless extended by the Court. The FCC Order also lasts for seven years. The Department believes this time period is long enough to ensure that the JV cannot deny access to Comcast's OVD competitors at a crucial point in their development but otherwise short enough to account for the rapidly evolving nature of the video distribution market.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any person who has been injured as a result of conduct prohibited by the antitrust laws may bring suit in federal court to recover three times the damages the person has suffered, as well as costs and reasonable attorneys' fees. Entry of the proposed Final Judgment will neither impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. 16(a), the proposed Final Judgment has no prima facie effect in any subsequent private lawsuit that may be brought against Defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The Department and Defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the provisions of the APPA, provided that the Department has not withdrawn its consent. The APPA conditions entry upon the Court's determination that the proposed Final Judgment is in the public interest.
The APPA provides a period of at least 60 days preceding the effective date of the proposed Final Judgment within which any person may submit to the Department written comments regarding the proposed
Final Judgment. Any person who wishes to comment should do so within 60 days of the date of publication of this Competitive Impact Statement in the Federal Register, or the last date of publication in a newspaper of the summary of this Competitive Impact Statement, whichever is later.
All comments received during this period will be considered by the
Department, which remains free to withdraw its consent to the proposed
Final Judgment at any time prior to the Court's entry of judgment. The comments and the response of the Department will be filed with the
Court and published in the Federal Register.
Written comments should be submitted to: Nancy M. Goodman, Chief,
Telecommunications and Media Enforcement Section, Antitrust Division,
United States Department of Justice, 450 Fifth Street, NW., Suite 7000,
Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
Page 5458
jurisdiction over this action, and the parties may apply to the Court for any order necessary or appropriate for the modification, interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, seeking preliminary and permanent injunctions against
Defendants' transaction and proceeding to a full trial on the merits.
The United States is satisfied, however, that the relief in the proposed Final Judgment will preserve competition for the provision of video programming distribution services in the United States. Thus, the proposed Final Judgment would protect competition as effectively as would any remedy available through litigation, but avoids the time, expense, and uncertainty of a full trial on the merits.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed consent judgments in antitrust cases brought by the United States be subject to a sixty-day comment period, after which the court shall determine whether entry of the proposed Final Judgment ``is in the public interest.'' 15 U.S.C. 16(e)(1). In making that determination, the court, in accordance with the statute as amended in 2004, is required to consider:
(A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial. 15 U.S.C. 16(e)(1)(A), (B). In considering these statutory factors, the court's inquiry is necessarily a limited one as the government is entitled to ``broad discretion to settle with the defendant within the reaches of the public interest.'' United States v. Microsoft Corp., 56
F.3d 1448, 1461 (DC Cir. 1995); see also United States v. InBev N.V./
S.A., No. 08-1965 (JR), 2009-2 Trade Cas. (CCH) ] 76,736, 2009 U.S.
Dist. LEXIS 84787, at *3 (D.D.C. Aug. 11, 2009) (noting that the court's review of a consent judgment is limited and only inquires
``into whether the government's determination that the proposed remedies will cure the antitrust violations alleged in the complaint was reasonable, and whether the mechanisms to enforce the final judgment are clear and manageable.''). See generally United States v.
SBC Comm., Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) (assessing public interest standard under the Tunney Act).\25\
\25\ The 2004 amendments substituted ``shall'' for ``may'' in directing relevant factors for court to consider and amended the list of factors to focus on competitive considerations and to address potentially ambiguous judgment terms. Compare 15 U.S.C. 16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Comm., 489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review).
As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. Microsoft, 56
F.3d at 1458-62. With respect to the adequacy of the relief secured by the decree, a court may not ``engage in an unrestricted evaluation of what relief would best serve the public.'' United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel
Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40
(D.D.C. 2001); InBev, 2009 U.S. Dist. LEXIS 84787, at *3. Courts have held that:
t he balancing of competing social and political interests affected by a proposed antitrust consent decree must be left, in the first instance, to the discretion of the Attorney General. The court's role in protecting the public interest is one of insuring that the government has not breached its duty to the public in consenting to the decree. The court is required to determine not whether a particular decree is the one that will best serve society, but whether the settlement is ``within the reaches of the public interest.'' More elaborate requirements might undermine the effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\26\ In determining whether a proposed settlement is in the public interest, a district court ``must accord deference to the government's predictions about the efficacy of its remedies, and may not require that the remedies perfectly match the alleged violations.'' SBC Comm., 489 F.
Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 (noting the need for courts to be ``deferential to the government's predictions as to the effect of the proposed remedies''); United States v. Archer-
Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant ``due respect to the government's prediction as to the effect of proposed remedies, its perception of the market structure, and its views of the nature of the case'').
\26\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or disapproving the consent decree''); United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the court is constrained to ``look at the overall picture not hypercritically, nor with a microscope, but with an artist's reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
Courts have greater flexibility in approving proposed consent decrees than in crafting their own decrees following a finding of liability in a litigated matter. ``[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is `within the reaches of public interest.''' United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also
United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even though the court might have imposed a greater remedy if the matter had been litigated). To meet this standard, the Department ``need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.'' SBC Comm., 489 F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its Complaint, and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree against that case.'' Microsoft, 56 F.3d at 1459; see also InBev, 2009
U.S. Dist. LEXIS 84787, at *20 (``[T]he `public interest' is not to be measured by comparing the violations alleged in the complaint against those the court believes could have, or even should have, been alleged.''). Because the ``court's authority to review the decree
Page 5459
depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first place,'' it follows that
``the court is only authorized to review the decree itself,'' and not to ``effectively redraft the complaint'' to inquire into other matters that the United States did not pursue. Microsoft, 56 F.3d at 1459-60.
As this Court recently confirmed in SBC Communications, courts ``cannot look beyond the complaint in making the public interest determination unless the complaint is drafted so narrowly as to make a mockery of judicial power.'' SBC Comm., 489 F. Supp. 2d at 15. In its 2004 amendments, Congress made clear its intent to preserve the practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction that ``[n]othing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.'' 15 U.S.C. 16(e)(2).
The language wrote into the statute what Congress intended when it enacted the Tunney Act in 1974, as Senator Tunney explained: ``[t]he court is nowhere compelled to go to trial or to engage in extended proceedings which might have the effect of vitiating the benefits of prompt and less costly settlement through the consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of Senator Tunney). Rather, the procedure for the public interest determination is left to the discretion of the court, with the recognition that the court's ``scope of review remains sharply proscribed by precedent and the nature of
Tunney Act proceedings.'' SBC Comm., 489 F. Supp. 2d at 11.\27\
\27\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the court to make its public interest determination on the basis of the competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ] 61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt failure of the government to discharge its duty, the Court, in making its public interest finding, should * * * carefully consider the explanations of the government in the competitive impact statement and its responses to comments in order to determine whether those explanations are reasonable under the circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated simply on the basis of briefs and oral arguments, that is the approach that should be utilized.'').
VIII. Determinative Documents
Appendix F to the FCC's Memorandum Opinion and Order, In re
Applications of Comcast Corp., General Electric Co. and NBC Universal,
Inc. for Consent to Assign Licenses and Transfer Control of Licensees,
FCC MB Docket No. 10-56 (adopted Jan. 18, 2011), was the only determinative document or material within the meaning of the APPA considered by the Department in formulating the proposed Final
Judgment. The Department will file a notice and link to this document as soon as it is posted on the FCC's Web site.
Dated: January 18, 2011.
Respectfully submitted,
/s/--------------------------------------------------------------------
Yvette F. Tarlov (D.C. Bar 442452)
Attorney, Telecommunications & Media Enforcement, Antitrust
Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 7000, Washington, DC 20530, Telephone: (202) 514-5621, Facsimile:
(202) 514-6381, Email: Yvette.Tarlov@usdoj.go.
In the United States District Court for the District of Columbia
United States of America, State of California, State of Florida,
State of Missouri, State of Texas, and State of Washington,
Plaintiffs, v.
Comcast Corp., General Electric Co., and NBC Universal, Inc.,
Defendants.
Civil Action No.
Proposed
Final Judgment
Whereas, Plaintiffs, the United States of America and the States of
California, Florida, Missouri, Texas, and Washington, filed their
Complaint on January 18, 2011, alleging that Defendants propose to enter into a joint venture that will empower Defendant Comcast
Corporation to block competition from video programming distribution competitors in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Plaintiffs and Defendants, by their respective attorneys, have consented to the entry of this Final Judgment without trial or adjudication of any issue of fact or law, and without this
Final Judgment constituting any evidence against or admission by any party regarding any issue of fact or law;
And whereas, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And whereas, Plaintiffs require Defendants to agree to undertake certain actions and refrain from certain conduct for the purpose of remedying the loss of competition alleged in the Complaint;
And whereas, Defendants have represented to the United States that the actions and conduct restrictions can and will be undertaken and that Defendants will later raise no claim of hardship or difficulty as grounds for asking the Court to modify any of the provisions contained below;
Now therefore, before any testimony is taken, without trial or adjudication of any issue of fact or law, and upon consent of
Defendants, it is ordered, adjudged, and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each of the parties to this action. The Complaint states a claim upon which relief may be granted against Defendants under Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18.
II. Definitions
As used in this Final Judgment:
-
``AAA'' means the American Arbitration Association.
-
``Affiliated'' means directly or indirectly controlling, controlled by, or under common control with a Person.
-
``Broadcast Network'' means The Walt Disney Company (ABC), CBS
Inc. (CBS), News Corporation (FOX), NBCU (NBC and Telemundo), or any other Person that provides live or recorded Video Programming for broadcast over a group of local television stations.
-
``Broadcast Network Peer'' means (1) CBS Inc. (CBS), News
Corporation (FOX), or The Walt Disney Company (ABC); or (2) any of the top four Broadcast Networks, measured by the total annual net revenue earned by the Broadcast Network from the broadcast of live or recorded
Video Programming over a group of local television stations. Defendants are not Broadcast Network Peers, even if they are one of the top four
Broadcast Networks.
-
``Business Model'' means the primary method by which Video
Programming is monetized (e.g., ad-supported, subscription without ads, subscription with ads, electronic sell through, or pay per view/ transactional video on demand).
-
``Cable Programmer'' means Time Warner, Inc., The Walt Disney
Company, News Corporation, Viacom, Inc., NBCU, or any other Person that provides Video Programming for distribution through MVPDs. A Person that provides Video Programming to MVPDs solely as a Broadcast Network or as a Network Affiliate, O&O, or local television station operating within its licensed territory is not a Cable Programmer.
-
``Cable Programmer Peer'' means (1) News Corporation, Time
Warner, Inc., Viacom, Inc., or The Walt Disney Company; or (2) any of the top five Cable Programmers, measured by the total annual net revenue earned by the Cable Programmer from its cable networks, as reported by SNL Kagan (or another source commonly relied upon in the television industry), excluding revenues earned from regional sports networks. Defendants are not Cable
Page 5460
Programmer Peers, even if they are one of the top five Cable
Programmers.
-
``Comcast'' means Comcast Corporation, a Pennsylvania corporation with its principal place of business in Philadelphia,
Pennsylvania, its successors and assigns, and its Subsidiaries (whether partially or wholly owned), divisions, groups, Partnerships, and Joint
Ventures, and their directors, officers, managers, agents, and employees.
I. ``Defendants'' means Comcast, General Electric, and NBCU, acting individually or collectively, as appropriate. Where the Final Judgment imposes an obligation to engage in or refrain from engaging in certain conduct, that obligation shall apply to each Defendant individually and to any Joint Venture established by any two or more Defendants.
-
``Department of Justice'' means the United States Department of
Justice Antitrust Division.
-
``Experimental Deal'' means an agreement between an OVD and a
Peer for a term of six months or less.
L. ``Film'' means a feature-length motion picture that has been theatrically released.
-
``Final Offer'' means a proposed contract identifying the Video
Programming Defendants are to provide to OVDs pursuant to Section IV.A or IV.B of this Final Judgment and containing the proposed price, terms, and conditions on which Defendants will provide that Video
Programming.
-
``General Electric'' means General Electric Company, a New York corporation with its principal place of business in Fairfield,
Connecticut, its successors and assigns, and its Subsidiaries (whether partially or wholly owned), divisions, groups, Partnerships, and Joint
Ventures, and their directors, officers, managers, agents, and employees.
-
``Hulu'' means Hulu, LLC, a Delaware limited liability company with its headquarters in Los Angeles, California, its successors and assigns, and its Subsidiaries (whether partially or wholly owned), divisions, groups, Partnerships, and Joint Ventures, and their directors, officers, managers, agents, and employees.
-
``Internet Access Service'' means a mass-market retail communications service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all
Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service. Internet Access Service does not include virtual private network services, content delivery network services, multichannel video programming services, hosting or data storage services, or Internet backbone services (if those services are separate from Internet Access Services).
-
``MVPD'' means a multichannel video programming distributor as that term is defined on the date of entry of this Final Judgment in 47
CFR 76.1200(b).
-
``NBCU'' means NBC Universal, Inc., a Delaware corporation with its principal place of business in New York, New York, its successors and assigns, and its Subsidiaries (whether partially or wholly owned), divisions, groups, Partnerships, and Joint Ventures, and their directors, officers, managers, agents, and employees.
-
``Network Affiliate'' means a local television station that broadcasts some or all of the Video Programming of Defendants'
Broadcast Networks (i.e., NBC or Telemundo). A Network Affiliate is owned and operated by Persons other than Defendants.
-
``O&O'' means a local television station owned and operated by
Defendants that broadcasts the Video Programming of one of Defendants'
Broadcast Networks (i.e., NBC or Telemundo).
-
``OVD'' means any Person that distributes Video Programming in the United States by means of the Internet or another IP-based transmission path provided by a Person other than the OVD. This definition (1) includes an MVPD that offers Video Programming by means of the Internet or another IP-based transmission path outside its MVPD footprint as a service separate and independent of an MVPD subscription; and (2) excludes an MVPD that offers Video Programming by means of the Internet or another IP-based transmission path to homes inside its MVPD footprint as a component of an MVPD subscription.
V. ``Peer'' means any Broadcast Network Peer, Cable Programmer
Peer, or Production Studio Peer, its successors, assigns, and any
Person that is managed or controlled by any Broadcast Network Peer,
Cable Programmer Peer, or Production Studio Peer. Defendants are not
Peers.
-
``Person'' means any natural person, corporation, company, partnership, joint venture, firm, association, proprietorship, agency, board, authority, commission, office, or other business or legal entity, whether private or governmental.
X. ``Plaintiff States'' means the States of California, Florida,
Missouri, Texas, and Washington.
-
``Production Studio'' means Time Warner, Inc. (Warner Bros.
Television and Warner Bros. Pictures), News Corporation (20th Century
Fox Television and 20th Century Fox), Viacom, Inc. (Viacom's television production subsidiaries and Paramount Pictures), Sony Corporation of
America (Sony Pictures Television and Sony Pictures Entertainment), The
Walt Disney Company (Disney-ABC Studios and the Walt Disney Motion
Pictures Group), NBCU (Universal Pictures, Focus Films, and Universal
Studios), and any other Person that produces Video Programming for distribution through Broadcast Networks or Cable Programmers.
-
``Production Studio Peer'' means (1) News Corporation, Viacom,
Inc., Sony Corporation of America, Time Warner, Inc., or The Walt
Disney Company; or (2) any of the top six Production Studios, measured by the total annual net revenue earned by the Production Studio from the sale or licensing of Video Programming. Defendants are not
Production Studio Peers, even if they are one of the top six Production
Studios.
AA. ``Qualified OVD'' means any OVD that has an agreement with a
Peer for the license of Video Programming to the OVD (other than an agreement under which an OVD licenses only short programming segments or clips from the Peer), where the OVD is not Affiliated with the Peer.
BB. ``Specialized Service'' means any service provided over the same last-mile facilities used to deliver Internet Access Service other than (1) Internet Access Services, (2) services regulated either as telecommunications services under Title II of the Communications Act or as MVPD services under Title VI of the Communications Act, or (3)
Defendants' existing VoIP telephony service.
CC. ``Subsidiary,'' ``Partnership,'' and ``Joint Venture'' refer to any Person in which there is partial (25 percent or more) or total ownership or control between the specified Person and any other Person.
DD. ``Value'' means the economic value of Video Programming based on, among other factors, the Video Programming's ratings (as measured by The Nielsen Company or other Person commonly relied upon in the television industry for television ratings), affiliate fees, advertising revenues, and the time elapsed since the Video Programming was first distributed to consumers by a Broadcast Network or Cable
Programmer.
EE. ``Video Programming'' means programming provided by, or generally considered comparable to programming
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provided by, a Broadcast Network or Cable Programmer, regardless of the medium or method used for distribution, and includes programming prescheduled by the programming provider (also known as scheduled programming or a linear feed); programming offered to viewers on an on- demand, point-to-point basis (also known as video on demand); pay per view or transactional video on demand; short programming segments related to other full-length programming (also known as clips); programming that includes multiple video sources (also known as feeds, including camera angles); programming that includes video in different qualities or formats (including high-definition and 3D); and Films for which a year or more has elapsed since their theatrical release. For purposes of this Final Judgment, Video Programming shall not include programming over which General Electric possesses ownership or control that is unrelated to its ownership interest in NBCU.
III. Applicability
This Final Judgment applies to Defendants and all other Persons in active concert or participation with any of them who receive actual notice of this Final Judgment by personal service or otherwise.
IV. Required Conduct
Provision of Economically Equivalent Video Programming Terms to OVDs
-
At the request of any OVD, Defendants shall provide, for distribution to consumers through a linear feed (plus any associated video-on-demand rights), all Video Programming they provide to any MVPD in the United States with more than one million subscribers, on terms that are Economically Equivalent to the terms on which Defendants provide Video Programming to that MVPD.
For purposes of this Section IV.A: 1. ``Economically Equivalent'' means the price, terms, and conditions that, in the aggregate, reasonably approximate those on which Defendants provide Video Programming to an MVPD, and shall take account of, among other things, any difference in advertising revenues earned by Defendants through OVD distribution and those earned through
MVPD distribution; any limitation of Defendants' legal rights to provide Video Programming as a linear feed over the Internet or other
IP-based transmission path; any generally applicable, market-based requirements regarding minimum subscriber and penetration rates; and any other evidence concerning differences in revenues earned by
Defendants in connection with the provision of Video Programming to the
OVD rather than to an MVPD. 2. Defendants shall provide to any requesting OVD all Video
Programming subject to Defendants' management or control and all Video
Programming, including Video Programming owned by another Person, over which Defendants possess the power or authority to negotiate content licenses. 3. At the request of the OVD, Defendants shall provide any bundle of channels, and all quality formats (e.g., high definition, 3D) and video-on-demand rights that Defendants provide to any MVPD in the
United States with more than one million subscribers. 4. Subject to other provisions of this Section IV.A, Defendants shall not apply to an OVD any terms or conditions contained in
Defendants' agreements with MVPDs that would not be technically or economically practicable if applied generally to Video Programming distributed by OVDs (e.g., that the OVD distribute Video Programming over an MVPD system). 5. In any agreement they enter into with an OVD under this Section
IV.A, Defendants may require that the OVD not distribute Defendants'
Video Programming to consumers (a) if Defendants' Video Programming constitutes more than 45 percent of the OVD's Video Programming
(measured by hours available to subscribers), and (b) until at least one Peer has agreed to provide Video Programming to the OVD (including, if the Defendants agree to provide NBC Video Programming to the OVD, at least one Broadcast Network Peer). 6. Defendants may condition their provision of Video Programming to an OVD under this Section IV.A on the OVD's (a) Agreement not to distribute the Video Programming to consumers through a Web site promoting or communicating the availability or accessibility of pornography, gambling, or unlawful activities; (b) reasonable demonstration of its ability to meet its financial obligations; (c) demonstration of its ability to satisfy reasonable quality and technical requirements for the display and secure protection of
Defendants' Video Programming; (d) agreement to limit the distribution of an O&O's Video Programming linear feed solely to that O&O's designated market area or ``DMA''; or (e) agreement to limit the distribution of Defendants' Video Programming to the territory of the
United States.
Provision of Comparable Video Programming to OVDs
-
At the request of any Qualified OVD, Defendants shall provide
Comparable Video Programming to the Qualified OVD on terms that are
Economically Equivalent to the price, terms, and conditions on which the Qualified OVD receives Video Programming from a Peer.
For purposes of this Section IV.B: 1. ``Economically Equivalent'' means price, terms, and conditions that, in the aggregate, reasonably approximate those on which the Peer provides Video Programming to the Qualified OVD, and shall take account of, among other things, any difference between the Value of the Video
Programming the Qualified OVD seeks from Defendants and the Value of the Video Programming it receives from a Peer. 2. ``Comparable'' Video Programming means Defendants' Video
Programming that is reasonably similar in kind and amount to the Video
Programming provided by the Peer, considering the volume (i.e., number of channels or shows) of Video Programming and its Value. 3. The following, among other types of Video Programming, are not
Comparable: a. First-day Video Programming and Video Programming distributed after Defendants' first-day distribution of that Video Programming to consumers; b. Repeat, prior-season Video Programming and original, first-run
Video Programming; c. Non-sports Video Programming and sports Video Programming; d. Broadcast Video Programming and cable Video Programming; e. Video Programming directed to children and Video Programming not directed to children; f. Local news Video Programming and Video Programming that is not local news; g. Film and non-Film Video Programming; and h. Film between one and five years from initial distribution and
Film over five years from initial distribution. 4. In any agreement they enter into with an OVD under this Section
IV.B, Defendants shall not be required to include exclusivity provisions for Comparable Video Programming even if the Qualified OVD's
Peer agreement includes exclusivity provisions, provided that the price, terms, and conditions on which Defendants provide Video
Programming to the Qualified OVD shall be adjusted so that, in the aggregate, they reasonably approximate the price, terms, and
Page 5462
conditions on which the Peer provides Video Programming to the
Qualified OVD. 5. If a Qualified OVD receives Video Programming from two or more
Peers in any single Peer category (i.e., Broadcast Network Peers, Cable
Programmer Peers, or Production Studio Peers) and pursuant to the same
Business Model, Defendants shall provide, pursuant to this Section
IV.B, Video Programming Comparable to the Video Programming of one Peer in that category selected by the Qualified OVD. If a Qualified OVD receives Video Programming from a Peer in two or more Peer categories,
Defendants shall provide Video Programming Comparable to the Peer in both or all categories. If a Qualified OVD receives Video Programming from two or more Peers in the same Peer category but pursuant to different Business Models, Defendants shall provide Video Programming
Comparable to each Peer pursuant to the Business Model specified in each Peer contract. 6. In responding to a request from a Qualified OVD to which
Defendants have provided Video Programming under this Section IV.B,
Defendants shall not be required to provide additional Video
Programming unless the Qualified OVD enters into a Video Programming agreement with (a) A Peer in a different Peer category (i.e., Broadcast
Network Peers, Cable Programmer Peers, or Production Studio Peers), (b) the same Peer under a different Business Model, or (c) the same Peer for additional Video Programming pursuant to the same Business Model. 7. At the request of an OVD with which Defendants have an agreement to provide Video Programming that subsequently becomes a Qualified OVD,
Defendants shall provide additional or different Video Programming so the Video Programming Defendants provide to the Qualified OVD
(including any Video Programming the Defendants have previously agreed to provide to the OVD) is Comparable to that which the Qualified OVD receives from the Peer. 8. Defendants may require the Qualified OVD to distribute Video
Programming obtained from Defendants pursuant to the Business Model under which the Qualified OVD distributes the Peer's Video Programming. 9. The number of Experimental Deals to which Defendants, at the request of Qualified OVDs, must respond by providing Comparable Video
Programming is limited to the maximum number of Experimental Deals any single Peer has entered into with OVDs. 10. If a Cable Programmer Peer provides substantially all of its cable channels to a Qualified OVD for distribution to consumers through a linear feed, Defendants may meet their obligation under this Section
IV.B to provide Comparable Video Programming by providing to the
Qualified OVD and requiring the Qualified OVD to distribute substantially all of Defendants' channels.
OVD Rights to Commercial Arbitration
-
If, after negotiations, in which Defendants shall participate in good faith and with reasonable diligence, Defendants and any OVD fail to agree on appropriate Economically Equivalent terms on which
Defendants must provide Video Programming under Sections IV.A or IV.B of this Final Judgment or on Comparable Video Programming under Section
IV.B of this Final Judgment, the OVD may apply to the Department of
Justice (but not to the Plaintiff States) for permission to submit its dispute with Defendants to commercial arbitration in accordance with
Section VII of this Final Judgment. For so long as commercial arbitration is available for the resolution of such disputes in a timely manner under the Federal Communications Commission's rules and orders, the Department of Justice will ordinarily defer to the Federal
Communications Commission's commercial arbitration process to resolve such disputes; provided that the Department of Justice reserves the right, in its sole discretion, to permit arbitration under this Final
Judgment to advance the competitive objectives of this Final Judgment.
Nothing in this Section IV.C shall limit the right of the United States to apply to this Court, pursuant to Section IX of this Final Judgment, either before or in place of commercial arbitration under Section VII of this Final Judgment, for an order enforcing Defendants' compliance or punishing their noncompliance with their obligations under Sections
IV.A and IV.B of this Final Judgment.
Disposition of Control Over Hulu
-
Within ten days after entry of this Final Judgment, Defendants shall (1) delegate any voting and other rights they hold pursuant to their ownership interest in Hulu in a manner that directs and authorizes Hulu to cast any votes related to such ownership interest in an amount and manner proportional to the vote of all other votes cast by other Hulu owners; and (2) relinquish any veto right or other right to influence, control, or participate in the governance or management of Hulu; provided that such delegation and relinquishment shall terminate upon Defendants' complete divestiture of their ownership interests in Hulu.
-
Defendants shall not read, receive, obtain, or attempt to obtain any confidential or competitively sensitive information concerning Hulu or influence, interfere, or attempt to influence or interfere in the management or operation of Hulu. Notwithstanding the foregoing,
Defendants may request and receive from Hulu regularly prepared, aggregated financial statements and information reasonably necessary for Defendants to exercise their rights to purchase advertising inventory from Hulu and to comply with their obligations under Section
IV.G of this Final Judgment.
-
Defendants shall not obtain or acquire any ownership interest in
Hulu beyond that which it possessed on January 1, 2011. Nothing in this
Section IV.F shall prohibit Defendants from receiving a proportional or less than proportional distribution of Hulu equity securities in connection with any future conversion of Hulu into a corporation, provided that Defendants' economic share in Hulu may not increase in connection with such distribution.
-
Defendants shall continue to provide Video Programming to Hulu of a type, quantity, ratings, and quality comparable to that of the
Broadcast Network owner of Hulu providing the greatest quantity of
Video Programming to Hulu. Provided that the other current Broadcast
Network owners of Hulu renew their agreements with Hulu, Defendants also either shall continue to provide Video Programming to Hulu on substantially the same terms and conditions as were in place on January 1, 2011, or shall enter into agreements with Hulu on substantially the same terms and conditions as those of the Broadcast Network owner whose renewed agreement is the most economically advantageous to Hulu.
Clear Delineation of Rights
-
Any agreement Defendants enter into with any Production Studio concerning Defendants' distribution of the Production Studio's Video
Programming shall include, unless inconsistent with common and reasonable industry practice and subject to any agreements not prohibited by Section V.B of this Final Judgment, either (1) an express grant by the Production Studio to Defendants of the right to provide the Video Programming to OVDs, or (2) an express retention of that right by the Production Studio.
Page 5463
Document Retention and Disclosures
I. Comcast and NBCU shall furnish to the Department of Justice and the Plaintiff States quarterly electronic copies of any communications with any MVPD, OVD, Broadcast Network, Cable Programmer, or Production
Studio containing allegations of Defendants' noncompliance with any provision of this Final Judgment.
-
Comcast and NBCU shall collect and maintain one copy of each of the following agreements, currently in effect or established after entry of this Final Judgment: 1. Each affiliation agreement between Defendants and any Network
Affiliate; 2. Each agreement under which a Network Affiliate authorizes
Defendants to negotiate on its behalf for carriage or retransmission on
MVPDs; 3. Each agreement for the carriage or retransmission of an O&O's or a Network Affiliate's (to the extent Defendants possess the power or authority to negotiate on behalf of the Network Affiliate) Video
Programming on an MVPD; and 4. Each syndication agreement under which Defendants provide Video
Programming to an O&O or Network Affiliate for distribution to consumers.
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Comcast and NBCU shall collect and maintain each document in their possession, custody, or control discussing an O&O's or a Network
Affiliate's denial or threat to deny Video Programming to an MVPD or
OVD. Defendants shall notify the Department of Justice and the
Plaintiff States within 30 days of learning that an O&O or a Network
Affiliate has denied or threatened to deny Video Programming to any
MVPD or OVD.
L. Comcast and NBCU shall collect and maintain documents sufficient to show the compensation each O&O and each Network Affiliate (about which Comcast or NBCU possesses information) receives from any MVPD or
OVD.
-
Comcast and NBCU shall collect and maintain complete copies of any final agreement or unsigned but operative agreement (1) under which
Defendants provide Video Programming (other than short programming segments or clips) to any MVPD or OVD, and (2) for Defendants' carriage or retransmission on their MVPD of Video Programming from a Network
Affiliate, a local television station, a Broadcast Network, or a Cable
Programmer. For any ongoing negotiations that have not yet produced a final or operative agreement, Comcast and NBCU shall also collect and maintain electronic copies of the most recent offer made to Defendants by an MVPD or OVD seeking Video Programming or by a Network Affiliate, local television station, Broadcast Network, or Cable Programmer seeking carriage or retransmission on Defendants' MVPD, and Defendants' most recent response or offer to any such Persons.
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Comcast and NBCU shall identify for the Department of Justice and the Plaintiff States semiannually 1. the name of each Person that in writing has requested or submitted to Defendants a contractual offer for Video Programming
(other than short programming segments or clips) for distribution to consumers, the date of such Person's most recent written request or contractual offer, and the date of Defendants' most recent response or offer to such Person; and 2. the name of each Person that in writing has requested or submitted a contractual offer for carriage or retransmission of the
Person's Video Programming on Defendants' MVPD, the date of such
Person's most recent written request or contractual offer, and the date of Defendants' most recent response or offer to such Person.
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Comcast and NBCU shall collect and maintain each document sent to or received from General Electric relating to (1) Defendants' provision of Video Programming to any MVPD or OVD, (2) any OVD's distribution of any Person's Video Programming to consumers, (3) carriage or retransmission of any Person's Video Programming on
Defendants' MVPD, or (4) Defendants' compliance or noncompliance with the terms of this Final Judgment.
V. Prohibited Conduct
Discrimination and Retaliation
-
Defendants shall not discriminate against, retaliate against, or punish (1) any Broadcast Network, Cable Programmer, Production Studio, local television station, or Network Affiliate for providing Video
Programming to any MVPD or OVD, or (2) any MVPD or OVD (i) for obtaining Video Programming from any Broadcast Network, Cable
Programmer, Production Studio, local television station, or Network
Affiliate, (ii) for invoking any provisions of this Final Judgment,
(iii) for invoking the provisions of any rules or orders concerning
Video Programming adopted by the Federal Communications Commission, or
(iv) for furnishing information to the United States or the Plaintiff
States concerning Defendants' compliance or noncompliance with this
Final Judgment.
Contractual Provisions
-
Defendants shall not enter into any agreement pursuant to which
Defendants provide Video Programming to any Person in which Defendants forbid, limit, or create economic incentives to limit the distribution of such Video Programming through OVDs, provided that, nothing in this
Section V.B shall prohibit Defendants from entering into agreements consistent with common and reasonable industry practice. Evidence relevant to determining common and reasonable industry practice may include, among other things, Defendants' contracting practices prior to
December 3, 2009, and the contracting practices of Defendants' Peers.
Notwithstanding any other provision in this Section V.B, in providing
Comparable Video Programming to a Qualified OVD under Section IV.B of this Final Judgment, Defendants may include exclusivity provisions only to the extent those provisions are no broader than any exclusivity provisions in the Qualified OVD's agreement with a Peer.
-
Defendants shall not enter into or enforce any agreement for
Defendants' carriage or retransmission on their MVPD of Video
Programming from a local television station, Network Affiliate,
Broadcast Network, or Cable Programmer under which Defendants forbid, limit, or create incentives to limit the local television station's,
Network Affiliate's, Broadcast Network's, or Cable Programmer's provision of its Video Programming to one or more OVDs, provided that, nothing in this Section V.C shall prohibit Defendants from 1. entering into and enforcing an agreement under which Defendants discourage or prohibit a local television station, Network Affiliate,
Broadcast Network, or Cable Programmer from making Video Programming for which Defendants pay available to consumers for free over the
Internet within the first 30 days after Defendants first distribute the
Video Programming to consumers; 2. entering into and enforcing an agreement under which the local television station, Network Affiliate, Broadcast Network, or Cable
Programmer provides Video Programming exclusively to Defendants, and to no other MVPD or OVD, for a period of time of not greater than 14 days; or 3. entering into and enforcing an agreement which requires that
Defendants are treated in material parity with other similarly situated
MVPDs, except to the extent application of other
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MVPDs' terms would be inconsistent with the purpose of this Final
Judgment.
Control or Influence Over Other Persons
-
Except as permitted by Section V.B of this Final Judgment,
Defendants shall not require, encourage, unduly influence, or provide incentives to any local television station or Network Affiliate to 1. Deny Video Programming to (a) any MVPD that provides Video
Programming to consumers in any zip code in which Comcast also provides
Video Programming to consumers or (b) any OVD; or 2. Provide Video Programming on terms that exceed its Value.
-
Notwithstanding any other provisions of this Final Judgment, including the definitions of ``Defendant,'' ``Comcast,'' ``NBCU,''
``General Electric,'' ``Subsidiary,'' ``Partnership,'' or ``Joint
Venture,'' unless Comcast, NBCU, or General Electric possesses or acquires control over The Weather Channel, TV One, FearNet, the
Pittsburgh Cable News Channel, or Hulu, or the right or ability to negotiate for any of those Persons or to influence negotiations for the provision of any such Person's Video Programming to MVPDs or OVDs, such
Person is not a Defendant subject to the obligations of this Final
Judgment.
-
Defendants shall not exercise any rights under any existing management or operating agreement with The Weather Channel to participate in negotiations for the provision of any of The Weather
Channel's Video Programming to any MVPD or OVD, to advise The Weather
Channel concerning any such negotiations, or to approve or obtain any information (other than aggregated financial reports) about any agreement between The Weather Channel and any MVPD or OVD. If, in the future, Defendants acquire the right to negotiate for The Weather
Channel or to exercise any control or influence over The Weather
Channel's negotiation of agreements with MVPDs or OVDs, Defendants shall provide The Weather Channel Video Programming to OVDs when required to do so under Sections IV.A or IV.B of this Final Judgment.
Practices Concerning Comcast's Internet Facilities
-
Comcast shall abide by the following restrictions on the management and operation of its Internet facilities: 1. Comcast, insofar as it is engaged in the provision of Internet
Access Service, shall not unreasonably discriminate in transmitting lawful network traffic over a consumer's Internet Access Service.
Reasonable network management shall not constitute unreasonable discrimination. A network management practice is reasonable if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the Internet Access Service. 2. If Comcast offers consumers Internet Access Service under a package that includes caps, tiers, metering, or other usage-based pricing, it shall not measure, count, or otherwise treat Defendants' affiliated network traffic differently from unaffiliated network traffic. Comcast shall not prioritize Defendants' Video Programming or other content over other Persons' Video Programming or other content. 3. Comcast shall not offer a Specialized Service that is substantially or entirely comprised of Defendants' affiliated content. 4. If Comcast offers any Specialized Service that makes content from one or more third parties available to (or that otherwise enables the exchange of network traffic between one or more third parties and) its subscribers, Comcast shall allow any other comparable Person to be included in a similar Specialized Service on a nondiscriminatory basis. 5. Comcast shall offer Internet Access Service that is sufficiently provisioned to ensure, in DOCSIS 3.0 or better markets, that an
Internet Access Service subscriber can typically achieve download speeds of at least 12 megabits per second. The United States or
Defendants may petition this Court, based upon a showing that comparable Internet Access Service providers (e.g., Persons using hybrid fiber-coax technology to provide service on a mass-market scale) have generally increased or decreased the speed of their services after the entry of this Final Judgment, to modify Comcast's required download speeds. This Section V.G does not restrict Comcast's ability to impose byte caps or consumption-based billing, subject to the other provisions of this Final Judgment. 6. Nothing in this Section V.G a. Supersedes any obligation or authorization Comcast may have to address the needs of emergency communications or law enforcement, public safety, or national security authorities, consistent with or as permitted by applicable law, or limits Comcast's ability to do so; or b. Prohibits reasonable efforts by Comcast to address copyright infringement or other unlawful activity.
VI. Permitted Conduct
Nothing in this Final Judgment prohibits Defendants from refusing to provide to any MVPD or OVD any Video Programming (1) for which
Defendants do not possess copyright rights; (2) not subject to
Defendants' management or control or over which Defendants do not possess the power or authority to negotiate content licenses; or (3) the provision of which would require Defendants' to breach any contract not prohibited by Sections V.B or V.C of this Final Judgment.
VII. Arbitration
-
Defendants shall negotiate in good faith and with reasonable diligence to provide Video Programming sought by an OVD pursuant to
Sections IV.A and IV.B of this Final Judgment and, upon demand by an
OVD approved by the Department of Justice pursuant to Section IV.C of this Final Judgment, shall participate in commercial arbitration in accordance with the procedures herein.
-
Defendants and an OVD may, by agreement, modify any time periods specified in this Section VII.
-
Any OVD seeking to invoke commercial arbitration under this
Final Judgment must, pursuant to Section IV.C of this Final Judgment, apply to the Department of Justice for permission to do so. If the
Department of Justice determines the commercial arbitration should proceed, the OVD shall furnish a written notice to Defendants and the
Department of Justice expressly (1) waiving all rights to invoke any dispute resolution process under Federal Communications Commission orders and rules to resolve a dispute with Defendants concerning the same Video Programming; and (2) stating that the OVD consents to be bound by the terms in the Final Offer selected by the arbitrator.
Arbitration under this Final Judgment is not available if a dispute between an OVD and Defendants concerning the same Video Programming is the subject of any Federal Communications Commission dispute resolution process. Defendants shall not (a) commence arbitration of any dispute under the arbitration procedures contained in this Final Judgment, or
(b) upon receipt of the notice from the OVD that it intends to commence arbitration under this Final Judgment, commence any Federal
Communications Commission dispute resolution process to resolve the same dispute with the OVD.
-
Arbitration pursuant to this Final Judgment shall be conducted in accordance with the AAA's Commercial
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Arbitration Rules and Expedited Procedures, except where inconsistent with specific procedures prescribed by this Final Judgment. As described below in Sections VII.P and VII.Q, the arbitrator shall select the Final Offer of either the OVD or the Defendants and may not alter, or request or demand alteration of, any terms of those Final
Offers. The decision of the arbitrator shall be binding on the parties, and Defendants shall abide by the arbitrator's decision.
-
The AAA, in consultation with the United States, shall assemble a list of potential arbitrators, to be furnished to the OVD and
Defendants as soon as practicable after commencement of the arbitration. Within five business days after receipt of this list, the
OVD and Defendants each may submit to the AAA the names of up to 20 percent of the persons on the list to be excluded from consideration, and shall rank the remaining arbitrators in their orders of preference.
The AAA, in consultation with the United States, will appoint as arbitrator the candidate with the highest ranking who is not excluded by the OVD or Defendants.
-
Defendants shall continue to provide Video Programming to an OVD pursuant to the terms of any existing agreement until the arbitration is completed. If the arbitrator's decision changes the financial terms on which Defendants must provide Video Programming to the OVD,
Defendants or the OVD, as the case may be, shall compensate the other based on application of the new financial terms for the period dating from expiration of the existing agreement (plus appropriate interest).
-
Within five business days of the commencement of an arbitration, the OVD and the Defendants each shall furnish a writing to the other and to the Department of Justice committing to maintain the confidentiality of the arbitration and of any Final Offers and discovery materials exchanged during the arbitration, and to limit the use of any Final Offers and discovery materials to the arbitration. The writing shall expressly state that all records of the arbitration and any discovery materials may be disclosed to the Department of Justice..
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Defendants shall not be bound by the provisions of this Section
VII if an OVD commences arbitration under this Final Judgment more than 60 days prior to the expiration of an existing Video Programming agreement, or less than 30 days after an OVD first requests Defendants to provide Video Programming under Section IV.A or IV.B of this Final
Judgment.
I. After an OVD receives approval from the Department of Justice, pursuant to Section IV.C of this Final Judgment, the OVD may commence arbitration by filing with the AAA and furnishing to Defendants and to the Department of Justice. 1. An assertion that Defendants must provide Video Programming to the OVD pursuant to Section IV.A or IV.B of this Final Judgment; and 2. If the Qualified OVD's assertion is based, pursuant to Section
IV.B of this Final Judgment, on Comparable Video Programming provided by a Peer or Peers, each agreement with any such Peers.
-
Simultaneously with the commencement of arbitration, the OVD must file with the AAA its Final Offer for the Video Programming it believes Defendants must provide.
-
Within five business days of the commencement of an arbitration,
Defendants shall file with the AAA and furnish to the Department of
Justice their Final Offer for the Video Programming sought by the OVD.
L. After the AAA has received Final Offers from the OVD and
Defendants, it will immediately furnish a copy of each Final Offer to the other party.
-
At any time after the commencement of arbitration, the OVD and
Defendants may agree to suspend the arbitration, for periods not to exceed 14 days in the aggregate, to attempt to resolve their dispute through negotiation. The OVD and the Defendants shall effectuate such suspension through a joint writing filed with the AAA and furnished to the Department of Justice. Either the OVD or the Defendants may terminate the suspension at any time by filing with the AAA and furnishing to the Department of Justice a writing calling for the arbitration to resume.
-
The OVD and the Defendants shall exchange written discovery requests within five business days of receiving the other party's Final
Offer, and shall exercise reasonable diligence to respond within 14 days. Discovery shall be limited to the following items in the possession of the parties: 1. Previous agreements between the OVD and the Defendants; 2. Formal offers to renew previous agreements; 3. Current and prior agreements between the Defendants and MVPDs or other OVDs; 4. Current and prior agreements between the OVD and other Broadcast
Networks, Cable Programmers, or Production Studios; 5. Records of past arbitrations pursuant to this Final Judgment; 6. Documents reflecting Nielsen or other ratings of the Video
Programming at issue or of Comparable Video Programming; and 7. Documents reflecting the number of subscribers to the OVD. There shall be no discovery or use in the arbitration of documents or information not in the possession, custody, or control of the OVD or the Defendants, of draft agreements or other documents concerning negotiations between the OVD and the Defendants (other than formal offers to renew previous agreements, pursuant to Section VII.N.2 of this Final Judgment), or of the costs associated with Defendants' production of their Video Programming.
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In reaching his or her decision, the arbitrator may consider only documents exchanged in discovery between the parties and the following: 1. Testimony explaining the documents and the parties' Final
Offers; 2. Briefs submitted and arguments made by counsel; and 3. Summary exhibits illustrating the terms of Defendants' agreements with MVPDs or other OVDs or of the party OVD's agreements with other Broadcast Networks, Cable Programmers, or Production
Studios.
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Arbitrations under Section IV.A of this Final Judgment shall begin within 30 days of the AAA furnishing to the OVD and to the
Defendants, pursuant to Section VII.L of this Final Judgment, each party's Final Offer. The arbitration hearing shall last no longer than ten business days, after which the arbitrator shall have five business days to inform the OVD and the Defendants which Final Offer best reflects the appropriate Economically Equivalent terms under Section
IV.A of the Final Judgment.
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Arbitrations under Section IV.B of this Final Judgment shall be conducted in two stages, the first of which shall begin within 30 days of the AAA furnishing to the Qualified OVD and to the Defendants, pursuant to Section VII.L of this Final Judgment, each party's Final
Offer. The first stage shall last no longer than ten business days, after which the arbitrator shall have five business days to inform the
Qualified OVD and the Defendants which Final Offer encompasses the appropriate Comparable Video Programming under Section IV.B of this
Final Judgment. Within five business days of the arbitrator's decision, the Qualified OVD and the Defendants shall file with the AAA, furnish to the Department of Justice, and exchange revised Final Offers containing proposed financial terms for the Comparable Video
Programming selected by the arbitrator. The second stage of the arbitration shall
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commence within ten days of the exchange of the revised Final Offers and shall last no longer than ten business days, after which the arbitrator shall have five business days to inform the Qualified OVD and the Defendants which Final Offer best reflects the appropriate
Economically Equivalent terms under Section IV.B of this Final
Judgment.
VIII. Compliance Inspection
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For purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be modified or vacated, and subject to any legally recognized privilege, from time to time duly authorized representatives of the Department of
Justice, including consultants and other persons retained by the
Department of Justice, shall, upon written request of an authorized representative of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice to Defendants, be permitted 1. Access during the Defendants' office hours to inspect and copy, or at the option of the United States, to require Defendants to provide to the United States and the Plaintiff States hard copy or electronic copies of, all books, ledgers, accounts, records, data, and documents in the possession, custody, or control of Defendants, relating to any matters contained in this Final Judgment, including documents
Defendants are required to collect and maintain pursuant to Sections
IV.J, IV.K, IV.L, IV.M, or IV.O of this Final Judgment; and 2. To interview, either informally or on the record, the
Defendants' officers, employees, or agents, who may have their individual counsel present, regarding such matters. The interviews shall be subject to the reasonable convenience of the interviewee and without restraint or interference by Defendants.
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Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports or respond to written interrogatories, under oath if requested, relating to any of the matters contained in this Final Judgment as may be requested. Written reports authorized under this paragraph may, at the sole discretion of the United States (after consultation with the Plaintiff States), require Defendants to conduct, at their cost, an independent audit or analysis relating to any of the matters contained in this Final
Judgment.
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No information or documents obtained by the means provided in this section shall be divulged by the United States to any person other than an authorized representative of (1) the executive branch of the
United States, (2) the Plaintiff States, or (3) the Federal
Communications Commission, except in the course of legal proceedings to which the United States is a party (including grand jury proceedings), or for the purpose of securing compliance with this Final Judgment, or as otherwise required by law.
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If at the time information or documents are furnished by a
Defendant to the United States and the Plaintiff States, the Defendant represents and identifies in writing the material in any such information or documents to which a claim of protection may be asserted under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure, and the
Defendant marks each pertinent page of such material, ``Subject to claim of protection under Rule 26(c)(1)(G) of the Federal Rules of
Civil Procedure,'' then the United States and the Plaintiff States shall give the Defendant ten calendar days notice prior to divulging such material in any civil or administrative proceeding.
IX. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to apply to this Court at any time for further orders and directions as may be necessary or appropriate to carry out or construe this Final Judgment, to modify any of its provisions, to enforce compliance, and to punish violations of its provisions. Notwithstanding the foregoing, the
Plaintiff States shall have no right to apply to the Court for further orders or directions with respect to Sections IV.C, IV.D, IV.E, IV.F,
V.G, or VII of this Final Judgment. In particular, the Plaintiff States shall not be able to apply to this Court to carry out, construe, modify, enforce, or punish violations of Sections IV.C, IV.D, IV.E,
IV.F, V.G, or VII of this Final Judgment.
X. No Limitation On Government Rights
Nothing in this Final Judgment shall limit the right of the United
States or the Plaintiff States to investigate and bring actions to prevent or restrain violations of the antitrust laws concerning any past, present, or future conduct, policy, or practice of the
Defendants.
XI. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall expire seven years from the date of its entry.
XII. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, including making copies available to the public of this Final Judgment, the Competitive Impact Statement, and any comments thereon and the United States' responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and response to comments filed with the Court, entry of this Final Judgment is in the public interest.
Date:------------------------------------------------------------------
Court approval subject to procedures set forth in the Antitrust
Procedures and Penalties Act, 15 U.S.C. 16
/s/--------------------------------------------------------------------
United States District Judge
FR Doc. 2011-1821 Filed 1-28-11; 8:45 am
BILLING CODE 4410-11-P
