EFFICACY OF FCC STUDY ON CABLE OWNERSHIP QUESTIONED
Observers of FCC and cable industry didn’t mince words Fri. when asked about Commission’s admission that there were “computational errors” in its experimental study on cable ownership, one saying research now should be deemed “irrelevant” and another referring to it as “a stupid little study.” They noted FCC released revised study and press release enumerating at least 4 errors at 5 p.m. on July 3, just before long holiday weekend. “They clearly wanted to bury the bad news,” one observer said. FCC official with firsthand knowledge of study and methods used acknowledged errors but said study wasn’t fundamentally flawed and, in fact, was quite relevant. Major change, official said, was that area of concern has shifted from market with 2 major cable operators to market with one dominant player holding at least 51% of market.
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Much of confusion centered on most-favored-nation (MFN) agreements, whereby programming network guarantees that large buyer won’t have to pay affiliate fee any higher than smaller company, official said. Originally, study said MFN agreements -- as opposed to no such pacts -- generated uniformly lower efficiency levels in concentrated markets with single “large” cable operator (51% market share) or 2 “major” MSOs (44% and 39% market shares, respectively). Study was revised to say that MFN pacts generated “similar efficiency levels” as when there was no MFN agreement in concentrated markets.
Study always had limited relevance because it was based on experimental economics, analyst Blair Levin of Legg Mason said: “It could never be the core justification for one conclusion or another.” With or without study, he predicted FCC ultimately would decide to raise cable ownership cap to somewhere between 40% and 50% of national MVPD market from 30%: “These are very different conclusions…, but does this mean that the Commission as a practical matter will come up with a different [ownership] line? No.” Lower than 40% might not pass muster with courts, and higher than 50% might not get by Justice Dept., Levin said. Such analysis lets merger between Comcast and AT&T Broadband pass, although it might limit future deals if combined company wanted to grow even bigger.
“The study as evidence has no weight,” said Mark Cooper of Consumer Federation of America: “No matter what, I think this study has shot itself in both feet… I think it has self-destructed.” Cooper said he wasn’t sure he would even bother to submit comments to FCC on study because it had become irrelevant: “Why bother?” However, Media Access Project Exec. Dir. Andrew Schwartzman said changes in study were “a matter of concern” because errors occurred in “the scenario which most nearly reflects reality.” MAP had said earlier that old study’s findings had boosted its conclusions that strong ownership caps were necessary. “My initial analysis is that it does not change the fundamentally important point, which is that in the real world scenario where most-favored-nation clauses are operative, increased concentration is anticompetitive,” Schwartzman said.
Among changes in study: Originally, it said popular programming network received significantly lower affiliate fees in market with 2 major cable operators and one DBS operator than in market with 2 moderately sized cable operators and several smaller buyers. Study now says there’s no significant difference in affiliate fees for that popular network, no matter which of 2 concentration scenarios exists. Now, study also says popular network gets significantly lower affiliate fee in market with one large operator and several smaller operators than in market with 2 moderately sized operators and several smaller buyers.
FCC officials said they didn’t intend to postpone July 18 comment deadline or Aug. 2 reply date because they didn’t deem study’s changes “significant,” characterizing them as “modest.” However, they held out possibility of postponement if stakeholders requested delay. NCTA spokesman was unavailable for comment, as Assn.’s offices were closed over long holiday weekend.