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Small Cablers: Keep DirecTV Terms

12/15/2006 7:00 PM Eastern

When News Corp. acquired its controlling stake in DirecTV three years ago, special conditions were set regarding the programmer’s negotiation of regional-sports network deals with smaller cable companies.

As Liberty Media moves to acquire News Corp.’s 39% stake in the direct-broadcast satellite TV provider, questions being raised include whether News Corp. should still be bound by those old conditions, and whether similar strictures should be placed on Liberty Media, which is expected to acquire three regional sports channels from News Corp.

The National Cable Television Cooperative, predicting a Liberty-DirecTV deal could take a year or more to close, plans to argue those restrictions set by the Federal Communications Commission should continue to be binding, pending any DirecTV sale.

Conditional Access
When News Corp. bought 39% of DirecTV in 2003, the Federal Communications Commission imposed conditions, including:
SOURCE: Multichannel News research.
Allowing small cable companies to appoint an agent to negotiate with News Corp. on the carriage of its local TV stations and regional sports networks. News Corp. can’t pull its broadcast stations or regional sports networks during carriage disputes with all cable companies.
Barring News Corp. from withholding any cable network under its control from any cable operator or satellite carrier at least until October 2007, and requiring arbitration to settle carriage disputes involving its TV stations and regional sports nets until January 2010.
Barring News Corp. from demanding cash and other programming compensation from cable companies with fewer than 5,000 subscribers in talks over carriage of Fox TV stations.

ACA KEEPING TABS

The American Cable Association, a lobbying group for small independent cable companies, promised to carefully scrutinize any Liberty-DirecTV deal.

“This proposed transaction would affect and perhaps modify hard-won programming and retransmission-consent conditions in the FCC’s DirecTV-News Corp. merger order,” the ACA said in a statement. “As appropriate, the ACA will work to enforce existing conditions, protect our members’ interests to the full extent of the law, and ensure continued access to Liberty and News Corp. programming on fair rates, terms and conditions.”

COMPLAINT PENDING

In July, the NCTC complained to FCC chairman Kevin Martin that Fox Cable was trying to circumvent the conditions set in the News Corp./DirecTV merger order, hamstringing the co-op’s efforts to do master carriage deals for Fox’s sports networks.

With a master agreement, NCTC members wouldn’t have to strike individual deals with the regionals.

The buying co-op plans to pursue that complaint even if a Liberty-DirecTV deal is announced, according to Dan Mulvenon, the NCTC’s vice president of corporate communications.

“The wheels on a transaction of this scope tend to turn pretty slowly, and can likely take a year or more to close,” he said. “So we are actively pursuing RSN agreements with Fox/ News Corp. right now, and we’re going to continue to move down that path.”

Officials at Fox Cable and Liberty declined to comment.

One FCC stricture on News Corp. allowed small- and medium-sized cable companies to appoint a bargaining agent to negotiate carriage of Fox Cable’s regional sports channels. Carriage disputes with Fox sports channels can also be submitted to arbitration by distributors.

The FCC was trying to protect small distributors from any negative impact stemming from the consolidation of News Corp., with its “must-have” regional-sports networks, and DirecTV, a nationwide distribution platform.

“The commission concludes that small and medium-sized [programming distributors] may be at particular risk of temporary foreclosure strategies aimed at securing supra-competitive programming rate increases,” the FCC said in its 2003 order.

The cooperative this summer told the FCC that Fox Cable has “stonewalled” and effectively refused to recognize it as the bargaining agent for the co-op’s small-system members, flying in the face of the agency’s 2003 order.

The NCTC said it needs to be able to review members’ current individual deals for regional sports channels in order to strike a master deal for all of its members. Fox Cable allegedly has declined to waive the confidentiality clauses on those individual contracts, so the NCTC can’t review them.

“Should we not reach an agreement with Fox by the end of the year, when many of these members’ RSN agreements are set to expire, we’ve already alerted the FCC that they should expect to hear from us before the New Year rings in,” Mulvenon said.

In answering the NCTC’s complaint, Fox Cable has denied violating the DirecTV-News Corp. merger order. The programmer claims the co-op has failed to identify which of its members have appointed it as bargaining agent. Fox Cable also told the FCC there might be antitrust issues regarding negotiating a master deal for its sports channels with the NCTC.

REGIONAL CONCERNS

As for Liberty, ACA CEO Matt Polka said that his group will study whether the programmer should be subject to restrictions similar to News Corp. as part of its acquisition of DirecTV, because Malone’s company is slated to get three of News Corp.’s sports networks in the $11 billion transaction.

Liberty is expected to gain ownership of FSN Pittsburgh, FSN Rocky Mountain in Denver and FSN Northwest in Seattle. “That raises the stakes, because it just creates significantly more issues there to be concerned about,” Polka said.

Without conditions, Malone could conceivably try to tie carriage of his sports networks to other Liberty services, according to Polka. Liberty’s assets include QVC and Starz.

September