$//Sports Programming Migration Final Report, FCC 94-149//$ $///FCC 94-14 7/6/94 Record Only///$RECORD ONLY ///newjob/// FCC 94-149 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Implementation of Section 26 of the ) Cable Television Consumer Protection ) PP Docket No. 93-21 and Competition Act of 1992 ) Inquiry into Sports Programming ) Migration ) Final Report Adopted: June 9, 1994Released: June 30, 1994 By the Commission: Commissioner Quello concurring and issuing a statement; Commissioner Barrett issuing a statement. TABLE OF CONTENTS Paragraph I. INTRODUCTION 1 II. FINDINGS REGARDING MIGRATION IN INDIVIDUAL SPORTS 7 A. Professional Football 7 B. Professional Basketball 13 C. Professional Baseball 27 D. Professional Hockey 48 E. College Football and Basketball 59 F. Other Sports 87 III. PRECLUSIVE CONTRACTS 93 A. Background 93 B. Comments 97 C. Findings 113 IV. SPORTS SIPHONING RULES 138 A. Background 138 B. Comments 141 C. Findings 144 V. ANTITRUST EXEMPTIONS 145 A. Background 145 B. Comments 146 C. Findings 154 VI. POLICY ISSUES 155 A. The Definition of Migration 156 B. Potential Causes and Consequences of Sports Programming Migration 161 C. The NFL "Season Ticket" Package 168 D. The Impact of Pay Media on the Availability of Sports Programming 172 VII. RECOMMENDATIONS AND CONCLUSIONS 173 VIII.ADMINISTRATIVE MATTERS 181 I. INTRODUCTION 1. Pursuant to the Cable Act of 1992, the Commission has conducted an examination of "the carriage of local, regional, and national sports programming by broadcast stations, cable programming networks, and pay-per-view services," and has attempted to determine "the extent to which preclusive contracts between college athletic conferences and video programming vendors have artificially and unfairly restricted the supply of the sporting events of local colleges for broadcast on local television stations." The 1992 Cable Act also instructed the Commission to analyze the "economic causes and the economic and social consequences" of migration trends and to submit to Congress "such legislative or regulatory recommendations as the Commission considers appropriate." As directed, the Commission submitted to Congress an Interim Report on July 1, 1993. The 1992 Cable Act also instructed the Commission to submit a "final report," on or before July 1, 1994. 2. The Commission began its sports programming migration inquiry with a Notice of Inquiry, released February 9, 1993. We defined sports programming migration as "the movement of sports programming from broadcast television to a subscription medium (i.e., one for which viewers pay a fee)" and sought information on the exhibition of sports events on broadcast and subscription media since 1980. The inquiry has focused on six sports -- professional football, basketball, baseball, and hockey, and college football and basketball -- which have had significant broadcast and non-broadcast exposure. 3. Based on an extensive record, the Commission tentatively concluded in the Interim Report that National Football League ("NFL") and college basketball games had not migrated to subscription media. With respect to National Basketball Association ("NBA"), Major League Baseball ("MLB"), and National Hockey League ("NHL") games, the Commission found that no migration had taken place at the national level. At the local level, there had been some shifts from broadcast television to subscription media, but the Commission concluded that "local migration has been isolated and relatively slight." We found no evidence that college football games had migrated to subscription media, but noted that further inquiry was needed to determine the impact of preclusive contracts between college football conferences and video programming vendors (including broadcast networks) on the availability of college football games to local television stations. 4. In preparation of this Final Report, the Commission requested supplementary material in the Further Notice of Inquiry. We sought additional information on the recent NFL, NBA, and MLB television and cable contracts, on contracts between college conferences and broadcast and cable networks, on specific instances of possible local migration, and on the cost of subscribing to cable sports services. We noted that our assessment of the consequences of sports programming migration and of preclusive contracts would be based on a public interest assessment that encompasses more than antitrust concerns. The Further Notice also sought comment on whether there is a public interest in government action to promote free access to sports programming and invited proponents of government intervention to suggest remedial measures. It went on to seek comment on pay-per-view exhibition of sports events, the impact of expected substantial increases in subscription media channel capacity on the availability of sports on broadcast television, and the effect of sports antitrust exemptions on the sports programming market. 5. With one exception, commenters on the Further Notice concurred with our conclusion that there had not been significant migration of sports programming from broadcast to subscription media. The Association of Independent Television Stations ("INTV") argued that the Commission should revise its definition of migration and that, in fact, significant migration of MLB games and college football games has taken place. INTV also is alone in arguing that preclusive contracts between college athletic conferences and video programmers have a significant impact on the availability of games for telecast by local television broadcast stations. 6. This Final Report is organized as follows: Section II contains findings regarding migration in individual sports, using the Commission's previously-adopted definition of migration; Section III addresses preclusive contracts with respect to college football; Section IV addresses the arguments for and against Commission "sports siphoning" rules; and Section V examines the sports antitrust exemptions. Section VI addresses a variety of policy issues, including the appropriate definition of migration, the impact of subscription media on the availability of sports other than the six on which we focused our inquiry, the NFL's plan to offer out-of-market games to sports bars and home satellite dish subscribers, and the potential causes and consequences of sports programming migration. Our recommendations and conclusions are in Section VII, and Section VIII addresses administrative matters. II. FINDINGS REGARDING MIGRATION IN INDIVIDUAL SPORTS A. Professional Football 1. Background 7. The Interim Report found that professional football had not migrated from broadcast to cable television, noting that every regular season and post-season NFL game was available on broadcast television, at least in the home market of the visiting team. In the Further Notice, we requested information on the NFL's new exhibition agreements entered into since the Interim Report. In particular, we sought comment on whether the movement of the National Football Conference ("NFC") games from CBS to Fox Broadcasting Company ("Fox") will affect the availability of games on broadcast television. 2. Comments 8. According to the NFL, the League's television exhibition plan has remained essentially the same as it was under its prior contracts. Under the new NFL broadcast and cable agreements, which extend through the end of the 1997 season, there will continue to be two or three Sunday games and one Monday night game broadcast each week in each market. There will also be Thanksgiving Day and Saturday broadcasts late in the season. NBC retains the rights to the American Football Conference ("AFC") regular season games and the AFC play-offs, including all AFC championship games, and has obtained exclusive broadcast rights to the 1996 and 1998 Super Bowl games. ABC will continue to have the right to air a package of Monday night games. All post-season games will be carried on one of the three broadcast networks, i.e., ABC, Fox or NBC. TNT and ESPN will continue to share the rights to nationally televise one game each week, usually on Sunday night. TNT holds the right to carry Sunday night games during the first half of the season and ESPN will telecast nine regular season Sunday (and an occasional Thursday) night games and three pre-season games each season. ESPN's telecasts will be on an exclusive, nationwide basis, but ESPN (as well as TNT) will continue to be obligated to make its telecasts available to an over-the-air station in the home cities of the participating teams. According to ESPN and Turner Broadcasting System, Inc. ("Turner"), the NFL created Sunday night coverage specifically for cable, so local and national football broadcasts have not decreased because of cable coverage. 9. One difference between the previous and current NFL agreements is the substitution of Fox for CBS as the network carrier of the NFC games. Time Warner Entertainment Company, L.P. ("Time Warner"), asserts that the NFL/Fox deal, among other things, demonstrates broadcasters' unfettered ability to acquire rights when they want to and the continued relegation of cable programmers to bidding only on those games broadcasters don't want. Time Warner states that Fox's emergence as a network carrying sports programming will likely result in more migration back to broadcast television. Time Warner further notes that CBS reacted to losing the NFC games by purchasing the right to telecast Southeastern Conference ("SEC") and Big East Conference ("Big East") college football games on a national basis, not by withdrawing from sports programming. According to Time Warner, events since the Interim Report affirm its original comments, in that, among other things, (1) the Super Bowl will remain on broadcast television, (2) cable programmers were only able to bid on NFL games that NBC, ABC and Fox did not take, demonstrating a pattern of "broadcaster-first" rights negotiations, and (3) the NFL and MLB arrangements show that the leagues strive to maximize their revenues without migrating to cable. 10. The NFL claims that its contract with Fox has enhanced the competitiveness of the broadcast marketplace. By increasing the number of fully competitive broadcast outlets, the NFL submits, the NFL/Fox deal should also improve the competitive posture of broadcast television networks as compared to subscription media in the sports programming marketplace. The NFL believes the result will be "less migratory pressure" on professional football and other sports programming for the foreseeable future. 11. Fox believes that its carriage of NFC games will not have a negative impact on the aggregate availability of games on broadcast television. In an attempt to bring its nationwide coverage to a level more comparable to the other broadcast networks, Fox has acquired twelve new affiliates nationwide, including eight former CBS affiliates, three former ABC affiliates and one former NBC affiliate. The addition of the twelve stations brings Fox's penetration to 97 percent of the country, as opposed to the 92 percent it had when it signed the NFL agreement. Fox executives claim that " The NFL was critical to this deal.'" 3. Findings 12. No commenters in this proceeding allege that professional football has migrated from broadcast television to cable programming and pay-per-view networks, either at a national or local level. Furthermore, the record does not demonstrate that the NFC games moving from CBS to Fox will have any significant effect on the availability of NFL games on broadcast television. As some parties have stated, Fox's movement into the sports programming marketplace may indeed benefit the industry by increasing competition and benefit consumers by increasing the number of broadcast outlets carrying sports programming. We are not, therefore, concerned at this time that professional football is migrating away from free television to subscription services. B. Professional Basketball 1. Background 13. The Interim Report found no significant migration of professional basketball telecasts from broadcast to cable television, either at the national or the local level. In the Further Notice, we requested any additional relevant information available on migration in the NBA context. Given that the NBA's national distribution contracts with NBC and Turner expire at the end of the 1993-94 season, we sought comment on the NBA's new contracts with NBC and TNT for national exhibition of league games, including the provisions limiting superstation telecasts and the status of the litigation over these provisions. We also specifically requested information on the decline in local exhibition of New York Knicks and Philadelphia 76ers games and on the Portland Trail Blazers games being offered through pay- per-view. More specifically, we sought comment on whether the 76ers had negotiated a new contract for local television broadcasts after the 1993-94 season and, if they had, the terms thereof. 2. Comments 14. As a general matter, the NBA asserts that last season the number of regular season games carried by broadcast and cable television combined was the highest in NBA history. The NBA further states that 736 games were broadcast in the 1992-93 season by local over-the-air stations, representing an all-time high and an increase of nearly 60 percent over the 1982-83 season, the earliest year for which the NBA presented figures. 15. The NBA has entered into new national exhibition agreements with NBC and with Turner. Both agreements are four years in duration and expire after the 1997-98 season. Under its new contract, NBC will carry up to 61 games each season, including a minimum of 25 regular season games, as well as up to 28 NBA play-off games in prime time. The NBA notes that this is more than twice the 26 network broadcasts carried in 1982-83 season, which included only seven regular season games. The NBA also states that under its contract with NBC, NBC has agreed to guarantee the NBA $750 million in rights fees. The contract provides that the NBA and NBC will share equally in advertising revenues if such revenues exceed an agreed upon benchmark. NBC notes that the agreement thus ties increases in rights fees to the underlying profitability of the television enterprise. 16. The NBA's agreement with Turner provides that the Atlanta Hawks games will no longer be shown on Superstation WTBS, but will be licensed for local over-the-air broadcast and for regional cable carriage on SportSouth. WTBS will instead join TNT in carrying the NBA regular season games and a limited number of early play-off games. More specifically, TNT will carry 45 (down from 50) regular season games and will continue to carry 35 early play-off games; Superstation WTBS will carry 25 previously untelevised regular season games and ten new play-off games. With respect to the play-off games, TNT and WTBS will carry competing games, i.e., different games televised at the same time. Turner will also telecast certain special events related to the NBA All Star Game. Furthermore, the NBA informs us that Turner has agreed to guarantee the NBA $352 million in rights fees, and to share advertising revenues equally if they exceed a predetermined level. 17. Both the NBC and the Turner contracts contain restrictions on the rights of the league to license broadcasts. The NBC agreement, for instance, prohibits the NBA and its teams from televising any game at the same time as NBC is televising an NBA game. The games televised by Turner, however, may be simultaneously broadcast in the local markets of the competing teams. According to Turner, nothing in the newly signed contracts changes the trend of cable telecasts reviving basketball's popularity, and local TV and radio revenues have not suffered as a result of the NBA's high cable profile. 18. In response to our inquiry regarding the litigation over the NBA's restriction on superstation telecasts (also called the "Same Night Rule"), Tribune Broadcasting Company ("Tribune") informs us that its superstation, WGN-TV, and the Chicago Bulls have sued the NBA in the U.S. District Court for the Northern District of Illinois, alleging that the NBA's exclusivity provisions, which restrict superstation telecasts, violate federal antitrust law. The litigation is in the final stages of post-trial briefing, and is awaiting a decision. 19. The NBA believes that its Same Night Rule, which prohibits any other national cable distribution of any NBA game on the same night as Turner is telecasting a game (either on WTBS or TNT), has no relevance to sports migration because the rule only restricts national cable networks (such as WGN) from telecasting an NBA game in the national market on the same night that the NBA's national cable carriers telecast a game. According to the NBA, the rule does not restrict the over-the-air broadcast of NBA games in the local markets of the competing teams. 20. New York Knicks. Madison Square Garden Corporation ("MSG") asserts that the decline in the number of locally broadcast Knicks games that occurred at the end of the 1989-90 season was not a result of migration, but of New York broadcast stations' lack of interest in carrying a meaningful number of basketball games. According to the NBA, local broadcast of sporting events is not as common in New York as in other major cities. Consequently, the NBA submits that, in order to present New York fans with a regular package of high quality game telecasts, the Knicks have found it necessary to distribute their games to the New York area on the MSG cable network. 21. Philadelphia 76ers. Through the end of the 1993-94 season, the Philadelphia 76ers games were carried on a combination of WPHL-TV (a local over-the-air station owned by Tribune), Prism (a premium cable sports and movie service serving the Philadelphia market), and SportsChannel (a regional cable sports service carried on the basic tier). No 76ers games are distributed on a pay-per-view basis. Rainbow informs us that prior to the 1991-92 season Prism only held rights to the 76ers home games. Since that time, Prism has held the local rights to exhibit all Philadelphia 76ers games and has shown some 76ers games on SportsChannel Philadelphia, a basic service, and some on Prism, a premium service. For the first three years of its current seven-year contract with Prism, the 76ers could and did reacquire the rights to ten away games (seven regular season and three post-season games) solely for local broadcast. Rainbow states that all ten games were, in fact, broadcast locally during each of these three years. According to Tribune, WPHL broadcast seven 76ers games each year for three years ending with the 1993-94 season. Rainbow states that the local broadcaster was only willing to pay a fraction of the per-game license fee Prism had paid, but that Prism and the 76ers nevertheless agreed to accept the reduced rate. The team's right to license ten games for local broadcast expired at the end of the 1993-94 season, leaving all regular season games for the next four years controlled by cable. According to Rainbow, Prism is negotiating with local stations regarding licensing 76ers games for local broadcast. According to the NBA, the 76ers have not signed a new agreement with WPHL-TV covering the 1994-95 season; however, the 76ers expect this relationship to continue. INTV states that there has been no explanation for the 76ers leaving WPHL-TV, other than that the station's advertising base could not support the higher bid necessary to outbid the Prism cable network. 22. Portland Trail Blazers. The NBA claims that, in order to protect home game attendance, the Portland Trail Blazers generally do not license their home games for local broadcast. According to the NBA, making the Trail Blazers' games available on pay-per-view provides Portland fans with the opportunity to view games previously unavailable on television, while continuing to protect game attendance. 23. Denver Nuggets. Citing press reports, INTV informs us that the Denver Nuggets recently decided to move the telecast of their home play-off games to pay-per-view within a 35-mile zone surrounding Denver. Away games regularly appear on television broadcast station KWGN, Denver, and home games appear on Prime Sports Network ("PSN"), which is carried on the basic cable programming tier. The play-off games will continue to appear on PSN's basic service outside the 35-mile zone. According to INTV, PSN says that it cannot keep the play-off games on basic because advertising revenues will not support the higher rights fees; INTV claims that this situation demonstrates that migration will continue at a local level. According to an article submitted by INTV, the play-off telecast schedule does not indicate that the Nuggets regular season games will go to pay-per-view in the near future. 24. Affiliated Regional Communications, Ltd. ("ARC"), claims that since the Interim Report, local broadcast coverage of NBA games has increased for each team with which an ARC service has entered or sought to renegotiate a contract. For example, on November 1, 1993, the Utah Jazz and Prime Sports Network-Intermountain West renewed their prior agreement which provides for carriage of five home games and twenty away games during the season. Local broadcast station KJZZ (co-owned with the Jazz) retains the rights to at least eight home and twenty away (a total of 28) regular season games and all away play-off games. In contrast, in the 1992-93 season, only 24 regular season Jazz games were scheduled for local broadcast. 3. Findings 25. As stated above, the Interim Report found that there had not been any significant migration of professional basketball telecasts from broadcast to cable television, either at the national or the local level. We do not believe that the NBA's new exhibition agreements raise any additional concerns regarding the migration of professional basketball at a national level. In fact, it appears that cable has simply supplemented broadcast television's carriage of basketball and provided consumers with more viewing choice. 26. We also find no evidence that significant migration of professional basketball is occurring at the local level. In general, cable sports carriage appears to supplement local broadcast television's coverage of professional basketball. With regard to the Knicks, commenters assert that any decline in local broadcast carriage is a result of a lack of broadcaster interest. With regard to the Denver Nuggets, the "migration" described by INTV is from basic cable service to pay-per-view service, and thus does not indicate sports migration as we have defined it. However, the Philadelphia 76ers' situation may well be a case of local migration, but the record before us does not clearly indicate the cause of the decline in broadcast coverage of 76ers games. Should cases of significant migration develop, we may revisit this issue in the future. C. Professional Baseball 1. Background 27. The Interim Report found that there has been a significant decline in the number of national, regular season television broadcasts of MLB games. The report concluded that the drop in the national, regular season broadcasts appeared to be a function of declining ratings rather than of migration to cable. The Interim Report also found that the record indicated some instances of migration at the local level. In the Further Notice, we invited comment on migration of national and local broadcasts, on MLB's new national contracts with ABC and NBC and with ESPN, and on changes in local broadcasts, especially the MSG and WPIX-TV agreement for over-the-air carriage of New York Yankees games. 2. MLB's New National Broadcast Contract a. Comments 28. MLB has entered into a joint venture with ABC and NBC called "The Baseball Network" ("TBN"). TBN will telecast twelve regular season games in the second half of the season and will exhibit the All Star game and all post-season games. MLB has no guaranteed rights fees under the agreement. MLB instead will take 87.5 percent of advertising revenues from the games until sales top a specified level, after which MLB's share drops to 80 percent. 29. MLB explains that TBN will produce and market all regular season and post- season telecasts on national broadcast network television. The first broadcast network telecast each season will be the All Star Game. A weekly telecast ("Baseball Night in America") will be aired during each of the twelve weeks following the All Star Game. Telecasts during the first six weeks will be presented over the ABC network, while telecasts during the final six weeks will be presented over the NBC network. The networks have exclusive rights for the twelve regular season dates, in that no regional or national cable service or over-the-air broadcaster may telecast an MLB game on those dates. 30. Under the new telecasting arrangement, TBN plans to produce a telecast for every one of the games to be played on the twelve telecast dates. Each telecast will then be delivered to that portion of the country in which it is likely to generate the greatest interest. MLB adds that, although fans will have access to twelve different network broadcasts of baseball during 1994, TBN will produce a total of up to 160 baseball telecasts for free television in 1994. Because all games on a given date will be telecast, TBN will have the ability to provide viewers with highlights and update coverage much the same as the networks do in their coverage of NFL regular season games. All regular season TBN telecasts will be broadcast in prime time in each time zone. TBN also seeks to generate viewer interest by televising regular season games on a regional, rather than on a national basis. By creating network-produced games of local interest during prime time, MLB anticipates that viewership will increase. 31. Although changes have been made to improve ratings for regular season broadcasts, the focus of MLB telecasts has shifted from the regular season to the post-season. MLB has restructured the American and National Leagues and has created an additional round of approximately twenty play-off games. All additional games will be shown on broadcast television. Baseball clubs in each league have been realigned into three Divisions, resulting in a new round of play-offs (the Divisional Series). The Eastern and Central Division of each League contain five teams apiece, and the Western Division of each League contains four teams. At the end of the regular season, each League's three division winners and a "wild card" team (the second place team with the best record) will meet in the best-of-five divisional play-offs. The two winning teams then advance to the best-of-seven League Championship Series ("LCS"). MLB anticipates that by keeping more teams in contention for post-season play, the new format will increase fan interest and ratings will rise accordingly. MLB states that under the new telecasting arrangement, all post-season games will remain on free television. ABC and NBC will alternate coverage of the All Star Game and post-season games. The network telecasting the All Star Game will also carry the LCS, while the other network will carry the new Divisional Series and the World Series. 32. MLB explains that the telecast of the LCS and Divisional Series will be regionalized. MLB states that under the CBS contract which expired at the end of the 1993 season, every LCS game was shown nationally. This required several games to be broadcast in the afternoon in order to accommodate all games in both leagues. In fact, baseball was the only professional sport that played post-season games during weekday afternoons. The result was that ratings for daytime LCS games declined 37 percent between 1985 and 1993. MLB has addressed this situation by organizing all Divisional Series and LCS games on a regional basis and by playing them in prime time. MLB believes that this will ensure that the game fans are most interested in will be available at a time most likely to be viewed. MLB adds that the World Series remains a national broadcast. INTV notes that the World Series will be the only nationally-broadcast MLB games. INTV contends that MLB's decision to move away from "national" telecasts and towards "regional" telecasts will make it more difficult for local stations to contract directly with local teams. However, INTV does suggest the new network arrangement responds to what it sees as a public demand for local baseball broadcasts in prime time. MLB believes the changes were necessary to address the current market for baseball broadcasts. MLB agrees that the number of baseball telecasts on national network television has declined but argues that any decrease in free telecasts of baseball, even when accompanied by an increase in subscription telecasts, cannot be presumed to constitute migration. When considering the decline in the number of national, regular season television broadcasts of MLB games, MLB says the evidence suggests that declining ratings have been the most significant factor contributing to decreased broadcaster demand. MLB believes that prime time regionalization of MLB games and its new contract structure represent a reasonable response to a weakened demand for national, regular season MLB games. b. Findings 33. The information submitted regarding the number of national, regular season television broadcasts does not lead us to change our finding in the Interim Report that the drop in those broadcasts is a function of declining ratings rather than migration to cable. Although the significant decline in ratings during the period since 1980 may not be the only reason for the decrease in national regular season broadcasts, it is clearly a significant factor. The record has shown throughout this proceeding that ratings for national regular season games have declined significantly during the period since 1980. This has led to a weakened demand from broadcasters. Moreover, the terms of MLB's current national television contract are consistent with our conclusion. MLB has moved games to prime time, has shifted the composition of games to post-season, and has agreed to a national network contract with no guaranteed rights fees. This represents a substantial change from previous agreements, and illustrates the fact that MLB has been forced to accept more risk than other professional sports leagues. 3. ESPN's Contract with MLB a. Comments 34. In September 1993, ESPN reached an agreement with MLB to extend ESPN's contract for national cable distribution of MLB regular season games. The new contract calls for ESPN to distribute approximately 77 regular season MLB games in each of the 1994 through 1999 seasons. ESPN has no rights to any post-season games. The games include Sunday evening single games, Wednesday night double-headers, and double-headers on opening day, Memorial Day, Independence Day and Labor Day. The contract contains limited exclusivity provisions. According to MLB, the agreement with ESPN will provide more than 60 million households nationwide with access to baseball telecasts that may not otherwise have been available. MLB argues that the substantial consumer benefits of the ESPN package would not be possible absent a grant of exclusivity. 35. ESPN has no exclusivity on opening day and holidays, limited regional exclusivity on Sunday, and broader exclusivity on Wednesdays. MLB states that ESPN does not have "blanket exclusivity" on Sunday nights. According to MLB, nothing in the ESPN contract prohibits any club from authorizing the telecast of a Sunday evening game by an over-the-air station (other than a superstation) or by a regional cable network -- unless ESPN makes that same game available within the clubs home territory (which it may do only a limited number of times each season). Furthermore, MLB adds that there are few Sunday night games in the current schedule and asserts that, prior to 1990 when ESPN began televising baseball, MLB clubs typically did not play on Sunday evenings. For example, of the approximately 340 games scheduled to be played on Sundays in 1989, the year prior to the ESPN contract, only twelve games were scheduled to start after 5:00 p.m. Eastern Time ("ET") -- six of which were Texas Rangers games which start late due to the heat. MLB contends that Sunday night baseball is essentially a new product. MLB will showcase a different stadium from around the league during each Sunday night telecast. 36. As for the Wednesday night exclusivity provisions, MLB states that no competing local, over-the-air telecasts or superstation telecasts are permitted. However, local and regional cable coverage is permitted on Wednesday nights. MLB notes that there are some Wednesday games in the afternoon which are not restricted and that flagship stations would not necessarily televise all Wednesday night games. Flagship stations are broadcast stations licensed to the community in which a baseball team plays its home games. MLB adds that, on any given Wednesday night during 1989, two-thirds of the U.S. flagships were not televising baseball. Thus, many American households might not receive an over-the-air baseball telecast on a given Wednesday night regardless of whether ESPN was afforded exclusivity by MLB. MLB concludes that Wednesday night exclusivity notwithstanding, local broadcasters have far more games to choose from throughout the season than they have slots available to broadcast such games. MLB suggests that Wednesday exclusivity has just shifted locally televised games to other days. In fact, a broadcaster may televise approximately 140 games without offending the exclusivity provisions in MLB's national rights agreement. 37. MLB provided output data for Wednesday broadcasts during the 1989 and 1994 seasons. MLB reports that there were 312 games played on Wednesdays in 1989, of which 40 were day games (4:05 p.m. ET or before), and 272 were night games. This represents 576 total telecasting opportunities (one game provides two telecasting opportunities -- one for each club). In 1994, there will be 349 Wednesday games played of which 87 will be day games and 262 will be night games. This represents 648 total telecasting opportunities (taking into consideration that two expansion teams have been added to the league since 1989). MLB states that in 1989, despite the fact that flagship stations had the opportunity to broadcast 87 percent of the Wednesday evening games, only one-third of the flagship stations were broadcasting baseball on any given Wednesday. INTV sugggests that this is a misleading statistic. It asserts that "one would expect that one-half of the flagship stations would not be broadcasting because they would be broadcasting a home game." To justify its contention, INTV refers to MLB's claim that teams are interested in protecting the live gate. Thus, of the 26 teams in 1989, thirteen visiting teams were available to their flagship stations on any given Wednesday night. INTV claims that, using MLB's data, two-thirds of the flagships that which could reasonably be expected to carry Wednesday games (9 visiting team flagship stations) were in fact broadcasting MLB games on Wednesday nights in 1989. 38. MLB also submitted data on the number of flagship broadcasts by night of the week for the 1989 and 1994 seasons. MLB states that in 1989 there were an average of 36.1 flagship broadcasts on the five weeknights combined. In 1994, there is an average of 36.4 flagship broadcasts on Monday, Tuesday, Thursday and Friday nights combined. MLB concludes that the ESPN contract has simply caused local broadcasters to carry more games on Monday, Tuesday, Thursday, and Friday to make up for the games no longer available. INTV asserts that ESPN's contract with MLB is a preclusive contract, in that it prohibits local stations from broadcasting games on Wednesday nights. INTV contends that this is especially egregious given that the exclusivity provision does not apply to regional pay cable channels. INTV also believes that ESPN has blanket exclusivity on Sunday nights. INTV concludes that ESPN's arrangement with MLB is nothing more than an attempt to limit output to enhance its competitive position, and suggests that the Commission should review ESPN's arrangement with MLB under the public interest standard of the Communications Act. b. Findings 39. We do not agree with INTV's assertion that the MLB agreement with ESPN is a preclusive contract as defined under the 1992 Cable Act. The Act discusses preclusive contracts when examining television coverage of college sports. Although the ESPN contract does contain exclusivity provisions, it is not considered a preclusive contract, even by analogy. After considering the total output of games, it seems clear that, although Wednesday nights do present a scheduling restriction for broadcasters, if the entire market is considered, the effect of the exclusivity provisions is more than offset by the available broadcast opportunities on other nights. Moreover, ESPN is providing 77 national games to 60 million households. While we understand INTV's concern that free over the air sports programming remain available to the broadcast television public, we cannot conclude that ESPN's contract with MLB presents a threat to free over-the-air broadcasts of baseball games. 4. Local Broadcasts a. Comments 40. We found in the Interim Report that some instances of local migration had occurred. MLB contends that it is providing the American public with more "free" broadcasts on local television than at any time in the past. MLB states that, in 1994, 28 baseball flagship stations are scheduled to present a total of 1,707 regular season telecasts (1,582 if the two expansion teams are not considered). This represents an average of 66 regular season games to be played by each club that will be televised on free over-the-air flagship stations. The 1,707 telecasts scheduled for 1994 represents a significant increase over the number of flagship telecasts presented in 1980 (the base year of this proceeding); the clubs presented a total of 1,392 flagship telecasts in that year. MLB adds that in assessing the amount of baseball programming available on free television, the Commission should consider the amount of baseball presented by regional broadcast networks (which consist of stations that rebroadcast the flagships' game telecasts). MLB states that 20 of the 26 baseball clubs have regional networks, and collectively there will be 188 regional broadcast affiliates in 1994. MLB concludes that cable programming services have provided fans across the country with additional viewing options, which offer a supplement to, not a substitute for, the telecasting of baseball by conventional broadcasters. 41. INTV suggests that MLB's aggregate data on local telecasts mask a trend of migration of MLB games from local television. INTV examines the increase in local telecasts between 1980 and 1993 (which it calculates as 313 games) and claims that 270 of them (86 percent) should not be counted as evidence against local migration. In particular, INTV rules out increased broadcast coverage by superstations, stations in markets with no regional cable network in 1993, stations in markets where broadcasts increased and cablecasts decreased, and stations in markets with limited cable carriage. INTV also examines six markets "where there has been a significant increase in cable exposure," and finds that broadcast coverage has dropped in each. It suggests that this supports the proposition that local baseball coverage is migrating from broadcast to cable. The increases in cable coverage for five of the six markets range from five to 64 games, while the declines in broadcast coverage range from two to 66 games. After some additional analysis, INTV concludes that "the presence of a cable sports channel has been associated with a decline in games in 20 out of the 28 baseball markets." 42. ARC criticizes INTV's discussion and suggests that the Commission should not ignore increases in local broadcast coverage of MLB games because of limited cable coverage or because the stations in question are superstations. ARC believes that INTV's selective statistical analysis provides no evidence of migration at the local level. Moreover, ARC criticizes INTV for comparing 1980-93 broadcast figures to 1984-93 cablecast figures. MLB asserts that the INTV analysis "effectively concedes that there is no evidence of migration in the majority of the baseball markets" and also states that "the record in this proceeding is devoid of any evidence that particular broadcasters are being denied access to baseball games which they are ready, willing, and able to televise." 43. MLB states that there are numerous factors which may limit stations' interest in local baseball coverage. MLB notes that a baseball club's opportunities to place telecasts on over-the-air television are limited. Stations affiliated with one of the national broadcast networks generally have less interest in televising baseball because of their commitments to televise network programming. In this regard, the emergence of the Fox network has served to decrease interest in bidding for baseball telecasts. The creation of additional broadcast networks (such as those planned by Time Warner and Paramount) could further decrease the amount of time that broadcasters are willing to devote to baseball. INTV suggests that there is simply no correlation between network affiliation and a reduced number of games appearing on a local station. INTV also believes that there is little evidence to support the theory that affiliation with the Fox network has led to a decline in a station's desire to carry local baseball. In addition, INTV states that MLB's claim that creation of new networks (Time Warner and Paramount) will decrease demand for baseball, is mere speculation. 44. MLB also notes that the impact upon gate receipts is a major factor in any telecasting arrangement. Many clubs believe that telecasting home games on broadcast television reduces gate receipts. Two clubs (the Cubs and Braves, which are commonly owned with their flagship superstations) do televise a number of home games over those stations. However, the remaining 24 U.S. clubs will broadcast an average of only fourteen of their 81 home games in 1994. That number has remained relatively constant since 1980. Because of the importance of gate receipts to clubs' financial health, most will likely continue their practice of broadcasting only a small portion of their home games. INTV asserts that the gate receipt issue will not necessarily contribute to a decline in the number games broadcast in most markets. INTV suggests that, in markets like Baltimore, where games are sold out in advance, restrictions on broadcast of home games are not necessary to protect the live gate. INTV argues that protecting the home gate is not a major factor in the decline of televised games; if protecting the home gate were the key factor, then all of the 81 away games could appear on local television without impacting the local gate. INTV believes that cable sports channels play an important role in reducing the unique value of a local station's rights fees. INTV adds that there is a discernable trend in which regional cable sports channels are securing all local television rights. 45. In addition to looking at factors that may contribute to local migration, we specifically sought comment on the MSG and WPIX-TV contract for over-the-air carriage of New York Yankees games. MSG states that WPIX has contracted to broadcast fifty games per year through the end of the 1996 season. As part of the contract, MSG and WPIX will share revenues derived from the sale of broadcast rights to over-the-air stations beyond WPIX's coverage area. MSG claims it has made "business concessions" (including sharing its advertising revenue from cablecasting with WPIX-TV) to overcome the fact that five of the six New York commercial television stations were unwilling or unable to broadcast the Yankees games in the agreement. MLB believes that the new contract is responsive to concerns that all Yankees games will be transferred to cable. MLB adds that at the time the Commission adopted its original siphoning rules, the Yankees were broadcasting approximately 68 games per year -- down from the 130 games that they had broadcast prior to entering into a contract with HBO for the telecast of several games on a subscription basis. b. Findings 46. We found in the Interim Report that some instances of migration had occurred at the local level. Commenters have brought to our attention the numerous factors that broadcasters consider in negotiating for MLB games. Considering the evidence, we cannot conclude that the decline in local broadcasts of MLB games that we have observed in a limited number of markets is a result of migration from local broadcasters. 47. We cannot accept INTV's analysis of local MLB broadcasts. As INTV recognizes in its reply comments, the figure of 1705 local games in 1993 that it used includes the two new expansion teams. Without them, the 1993 broadcast total is 1584. This represents an increase of 192 games over 1980. Of the 24 MLB teams in operation in both years, 17 increased their local broadcasts by a total of 349 games. One team stayed the same, and six teams had fewer local broadcasts (a total decline of 157 games) in 1993 than in 1980. Of the 157 game decline, 116 games are accounted for by the White Sox and the Yankees. If we were to take ARC's advice and focus on the 1984-93 period, the overall pattern is the same. During that period, fifteen teams increased their local broadcasts by a total of 256 games, seven experienced declines totalling 98 games, and two teams had no change in the number of local broadcasts. Moreover, we agree with ARC that it is not appropriate to ignore increases in broadcasts in the categories that INTV ruled out. Indeed, one of them -- increased broadcast coverage and reduced cable coverage -- could be consistent with "reverse migration." Although we are concerned with indications of migration at the local level, we see no evidence to indicate that our findings in the Interim Report should be modified. Accordingly, we reaffirm our conclusion that there is no pattern of migration of MLB games at the local level. D. Professional Hockey 1. Background 48. As stated in the Interim Report, the NHL licenses all national telecasts of its games, while individual teams license local telecasts. In the Interim Report, we found that, with few exceptions, there was no national broadcast television carriage of NHL games after 1980. We concluded that hockey had not migrated from broadcast to cable on a national level because it had not been carried on national broadcast television in the first place. With respect to local carriage of the NHL, the Interim Report noted a slight decline in the number of local games broadcast between the 1981-82 and 1992-93 seasons, but could not identify a single cause for the decline, indicating that NHL local broadcasts could have declined due to the increase in cable availability or to weakening demand. Nevertheless, we determined that this slight decline was no cause for concern. 49. The Further Notice requested information on the NHL's divisional realignments. We also invited additional comments regarding the telecast of professional hockey generally. We expressed particular interest in pay-per-view exhibition of play-off games by the Chicago Blackhawks and the (former) Minnesota North Stars, and the decline in the number of New York Ranger games on broadcast television. We also explicitly requested information on reverse migration and asked whether any decision had been made regarding additional national broadcast television coverage of NHL games for the current season. 2. Comments 50. The NHL states that, since filing its comments in response to the initial Notice, two new teams have been added to the League -- the Florida Panthers, based in Miami, Florida, and the Mighty Ducks of Anaheim, based in Anaheim, California. In addition, the Minnesota North Stars have relocated to Dallas, Texas, and are now known as the Dallas Stars. The NHL has also realigned the league to promote a conference-based play-off format. The Prince of Wales and Campbell Conferences have been respectively renamed the Eastern and Western Conferences. Each conference includes two divisions: the Atlantic and the Northeast Divisions in the Eastern Conference; and the Central and Pacific Divisions in the Western Conference. Sixteen teams will now qualify for the play-offs (eight teams from each Conference) and will be ranked on the basis of their regular season records. 51. ESPN is in the second year of a five-year agreement with the NHL, pursuant to which ESPN has the exclusive national rights to NHL games. Under this contract, ESPN carries one regular season game each week, and ESPN2 carries three games per week. ESPN also provides almost complete coverage of all play-off games. Although ESPN has exclusive rights to each of the NHL games on a national basis, it is required to black out the home market of the participating teams in each game, in order to protect local coverage of local teams. Last year, ESPN purchased time on ABC for five Stanley Cup play-off games. This year, ESPN will distribute three regular season and three Stanley Cup play-off games to be broadcast nationally by ABC. ESPN plans to continue to work with the NHL to gain national broadcast exposure for games which would otherwise only appear locally or on ESPN and ESPN2. 52. The NHL has expanded its national broadcast package for the current season. The NHL All Star Game was televised on NBC, and a total of over twenty games will be broadcast by ABC to various regions of the country over a six-week period. According to the NHL, this year's ABC package represents a significant increase over last year's five-week package. The NHL also has expanded its relationship with ESPN by adding an additional 75 regular season games on ESPN2 to the 25 games already on ESPN. 53. The NHL states that the number of local over-the-air telecasts of regular season games has increased recently, even allowing for the effect of the expansion teams. In the 1993-94 season, 53 home games and 263 away games are scheduled for broadcast. Excluding the expansion teams, the numbers are 41 home games and 245 away games, which represents a 2.5 percent increase over last year. As noted in the Interim Report, there has been a decline in the total number of local broadcasts since the 1981-82 season. NHL submissions show that, if all expansion teams are excluded, the total number of local broadcasts dropped from 324 in 1981-82 to 242 in 1993-94, but much of the decline is concentrated in a few markets. 54. The Chicago Blackhawks' home play-off games are shown on HawkVision, a pay-per-view service controlled by Rainbow. Rainbow assumed control over the television rights to the Blackhawk games in 1984. As far as Rainbow knows, no Blackhawk games have been locally broadcast since at least 1980. Rainbow asserts that no migration of Blackhawk games has occurred because the team has not permitted local broadcast of its home games in recent history. According to Rainbow, HawkVision televises games that would otherwise be unavailable to viewers, and pay-per-view exhibition of Blackhawk games thus represents an increase in viewing opportunities for Chicago-area hockey fans. 55. MSG, the owner of the Rangers, states that the decline in the number of Rangers games that occurred at the end of the 1989-90 season was not the result of migration. MSG claims that it was unable to find a broadcast television station willing to continue the schedule of games aired. 56. In response to our inquiry about why there has been a greater increase in cable exhibition of sporting events since 1980 than there has been in broadcast exhibition, the NHL claims that there is more room for growth on cable than on broadcast television and that cable is able to respond to a much more specialized audience than broadcast television stations. The NHL believes that without cable television it would be without national television distribution and asserts that the findings of the Interim Report (that hockey has not migrated to cable on a national level) should be modified to reflect that hockey had to consider cable options to survive. The NHL also states that its use of pay-per-view is extremely limited and entirely local. According to the NHL, pay-per-view has expanded viewer choice by making additional games available and should therefore be considered pro-consumer. 57. The NHL claims that INTV is the only party suggesting that regulation is either necessary or legally permissible. INTV does not, however, recommend regulation based on any data relating to NHL telecasts. According to the NHL, INTV focuses on college football, and extrapolates from alleged problems there to suggest a comprehensive regulatory scheme. According to the NHL, INTV's proposal is regulatory overkill and would effect sweeping changes in the way all sports programmers do business. The NHL adds that, even if there were no non-broadcast options, it does not necessarily follow that programming would "migrate" back to broadcast television. Instead, the NHL asserts, the absence of those options would result in a sharp reduction in, and a nearly complete loss of any national exposure for, some sports programming. 3. Findings 58. The comments submitted do not provide any additional evidence of migration of professional hockey games from broadcast television either on a national or local level. Before its exhibition on cable, professional hockey had virtually no national television exposure. Additionally, the NHL has demonstrated a recent increase in the number of hockey games broadcast locally. We therefore do not find any migration problem in professional hockey. E. College Football and Basketball 1. Background 59. The Notice requested data regarding the video distribution of college football and basketball games since 1980. In general, most collegiate commenters asserted that cable television coverage of collegiate athletics has not led to a decrease in broadcast coverage. Instead, they argued that cable has expanded the number and variety of collegiate events available to the public and, in many cases, events have been cablecast that would not otherwise have been shown on broadcast television. We found in the Interim Report that there was no evidence of migration of college basketball games to subscription media. We also found that concerns with respect to preclusive contracts arose almost exclusively in the college football context. Therefore, while our Further Notice sought additional information on possible examples of migration or preclusive contracts in the college basketball context, we placed a higher priority on information regarding local telecasts of college football games. 2. College Football a. Comments 60. INTV submits that there is evidence to demonstrate that college football games are migrating to cable, but several commenters contest this assertion. In its comments, INTV provides aggregate figures on college football telecasts for 1988-92. INTV provides 1984-92 data for three markets in its comments, and 1984-93 data for nine markets in its reply comments. 61. INTV's 1988-92 broadcast figures are for nationally-distributed games, i.e., games exhibited by the three major broadcast networks and those distributed by two syndicators to a group of stations assembled on an ad hoc basis. The figures cited by INTV show that, between 1988 and 1992, the number of college football games on CBS and NBC dropped from fourteen to seven, although games on ABC increased from sixteen to sixty. In the "non-network sector," INTV points out that the number of games distributed by the two broadcast syndicators cited in its data source declined from 64 in 1988 to 42 in 1992. ARC and ESPN point out that, if the three networks and the syndicators are aggregated, the number of network plus non-network games distributed actually rose from 94 in 1988 to 109 in 1992. 62. Cable coverage of college football games drastically increased from 1988 to 1992, according to INTV: coverage on national cable networks has increased from 50 to 192 games; coverage on regional pay sports channels increased from 105 to 280 games; and regional advertiser supported cable sports networks' coverage rose just over threefold, from 676 to 2,265 games. 63. INTV presents an analysis of three television markets -- San Francisco, Tucson and Minneapolis -- based on a survey of Saturday sports newspaper listings in each of these areas from 1984 through 1992. In San Francisco, INTV found that, from 1984 to 1992, the total number of games broadcast declined from 141 to 72 and the number of cable games increased from 28 to 86. INTV also asserts that the number of non-network games involving local teams dropped from four games to none, while cable coverage of local schools' games rose from one to seven games over this period. 64. In Tucson, INTV reports that, from 1984 to 1992, the number of live broadcasts dropped from 45 to 24, and the number of live cablecasts increased from 29 to 61. INTV also examined coverage of University of Arizona and Arizona State games in Tucson. The data indicated that broadcast coverage decreased from 12 to three games. On cable, however, there were zero games in 1984 and zero in 1992 (although in 1991 cable covered four games). 65. INTV also examines college football coverage in the Minneapolis market. Broadcast coverage declined from 13 to ten games, while cable coverage increased from 11 to 26 games between 1984 and 1992. INTV also notes that there has been no live local coverage of University of Minnesota games since 1988. Without specifically analyzing INTV's data, ARC and ESPN suggest that it is impossible to draw any conclusions about the overall college football market based on only three selected cities. 66. In its reply comments, INTV submitted data covering nine markets during the 1984-93 period and an analysis that it claims shows migration of college football games from broadcast television to cable. The analysis is based on data compiled by Pappas Telecasting Companies ("Pappas"). These data were gathered from the Saturday sports listings from major newspapers in the following nine television markets: (1) Cedar Rapids-Waterloo- Dubuque, Iowa; (2) Chicago, Illinois; (3) Detroit, Michigan; (4) Eugene, Oregon; (5) Columbus, Ohio; (6) Harrisburg-York-Lancaster, Pennsylvania; (7) Lansing, Michigan; (8) San Francisco-Oakland-San Jose, California; and (9) Los Angeles, California. INTV states that the results of this study provide additional support for its claim that live over-the-air coverage of college football games has declined significantly, particularly with respect to games covered by local television stations. 67. The INTV figures are broken into three categories -- network, local, and cable. Both "network" and "local" refer to broadcasts on local television stations in the nine markets, but the "local" category is comprised of games not distributed by a broadcast network. Local games may be exhibited on network affiliates or independent stations. As the following chart indicates, INTV's nine-market data set shows that, between 1984 and 1993, network broadcasts increased from 246 to 275, local (or non-network) broadcasts declined from 162 to 42, and cablecasts increased from 433 to 616. Thus, the number of games broadcast in these nine markets dropped from 408 in 1984 to 317 in 1993, while total telecasts rose from 841 to 933. Network Broadcasts Non-network Broadcasts Total Broadcasts Cablecasts Total Broadcast plus Cable 1984 246 162 408 433 841 1993 275 42 317 616 933 68. INTV asserts that there is a direct correlation between exclusive contracts and the decline of games on network and local stations. INTV relates the 1986-87 drop in total broadcasts (from 506 to 376) to ABC's acquisition of the national broadcast rights to Pacific- 10 Conference ("Pac 10") and Big 10 Conference ("Big 10") games. INTV also notes that ESPN has had cable rights to the College Football Association ("CFA") games every year since 1984. The number of non-network games broadcast dropped from 115 in 1988 to 83 in 1989. INTV notes that, beginning in 1989, ESPN had a contract to cablecast Big 10 games and ESPN/Prime Ticket had a contract to cablecast the Pac 10 games. INTV also suggests that other cable sports channels began to affect the market in 1989, when, according to Paul Kagan, basic tier advertiser-supported cable sports channels almost doubled their coverage from 676 games in 1988 to 1,299 games in 1989. Finally, INTV states that the decline in non-network games from 72 in 1990 to 55 in 1991 directly coincides with ABC's 1991 acquisition of the rights to the CFA games. 69. A variety of college athletic conferences submitted comments claiming that coverage of their member schools on both broadcast and cable television has been increasing. The Pac 10 submits that regular season appearances by its member schools have increased substantially on both broadcast and cable networks: from seventeen broadcast and three cable appearances in 1983 to 29 broadcast and 23 cable network appearances in 1993 (not including local arrangements). In addition, several parties assert that the break-up of the CFA in 1996, and the corresponding new agreements which will be negotiated will result in increased broadcast coverage of college football games. 70. The ACC claims that coverage of its games on broadcast stations is also on the rise. The ACC states that under its current CFA contract approximately four to six games will be shown nationally or regionally on broadcast stations and approximately 18-22 games will be available on broadcast when combining regional syndication with the national plan. Starting in 1996, agreements with ABC, ESPN and Jefferson Pilot Sports ("JP") (ACC rights holder for regional syndication) will increase by more than 50 percent the number of ACC games available on over-the-air TV: as many as forty games annually could be televised live by these three entities. ACC also notes that under its agreement with JP, local independent stations are free to acquire rights to broadcast ACC games held by JP, which some independent stations have in fact done. 71. Similarly, the Big East indicates that broadcast coverage of Big East college football games has not diminished or migrated to cable. Through membership in the CFA, Big East teams are guaranteed to receive at least twelve percent of the total network appearances available pursuant to the CFA agreements with ABC and ESPN, which expire in 1995. Big East teams have appeared in six to seven ABC broadcasts each year since the Big East was formed in 1991. Big East teams also occasionally appeared on network telecasts of certain "crossover" games against non-CFA members and cleared a "Game-of-the-Week" in most television markets in the Northeast and south Florida during this period. The Big East historically has given priority to its Game-of-the-Week in order to maximize its exposure in major television markets. New agreements will substantially expand the Big East's broadcast coverage. Beginning in 1996 when the Big East leaves the CFA and the conference's recently negotiated contracts take effect, the Big East exposure will increase, with nine to 12 conference games appearing on CBS each season. 72. ARC notes that in 1996, three major broadcast networks ABC, CBS, and NBC will be broadcasting college football in the same season, and it also raises the possibility that Fox might participate. For example, ARC states that new Big Eight contracts negotiated since the Interim Report provide for more games on both broadcast and cable than ever before. For the 1996-2000 seasons, ARC will have the right to televise up to twenty Big Eight games in addition to ABC's right to broadcast up to 36 games. ABC will have priority, but ARC can submit a list of ten games to the Conference each year, from which at least one will not be subject to ABC preemption. ARC will have the rights to two Thursday night prime time games and ten early window Saturday games. ABC has the rights to the late window games every Saturday and to two early window selections for double-headers on two Saturdays. ARC states that it plans to televise the Thursday and Saturday night games only on Prime Network, to syndicate the Saturday "early window" games to local broadcast stations throughout the Big Eight television markets, and to supplement the "inner market" broadcast coverage with cable distribution in non-Big Eight television markets. b. Findings 73. The information submitted in response to the Further Notice raises the concern that there has been some movement of college football games from broadcast television to cable. While the data are inconclusive, and the magnitude of the effect is unclear, the evidence does indicate a decrease in the availability of games involving local teams for broadcast in some local markets. However, recent developments also suggest that, after the CFA contract expires in 1996, the number of games on broadcast television overall is likely to rise. Because the data suggesting migration of college football games come from INTV, we shall focus our discussion on its submissions. 74. Because the three-market sample in INTV's comments is so limited, we concentrate on the nine-market data in INTV's reply comments. While nine markets is certainly better than three, it is nevertheless a relatively small sample. Moreover, the sample is presented as being representative of only the Big 10 and the Pac 10 experience. It is thus designed not to include any home markets of CFA teams. 75. As described above, INTV's aggregate data show that broadcast network coverage and cable coverage increased, while non-network broadcast coverage declined over the 1984-93 period. Network coverage increased from 246 to 275 games, with peaks at 281 in 1986 and 289 in 1989. Cable coverage increased from 433 in 1984 to 616 in 1993, with a small intermediate decline in 1986 and a more substantial decline in 1992. Non-network broadcast coverage rose sharply in 1985 to 237 games from 162 in 1984, but by 1993 it had declined to 42 games. Hence, overall broadcast coverage in the INTV sample declined from 408 to 317 games between 1984 and 1993. 76. The aggregate pattern of increased broadcast network and cable coverage accompanied by decreased non-network broadcast coverage occurs in only five of the nine individual markets. In two cases, Eugene and Harrisburg, non-network coverage, network coverage, and cable coverage all increased. Cedar Rapids exhibited a decline in coverage in all three categories, while Columbus had an increase in network coverage, but both local and cable coverage declined between 1984 and 1993. 77. INTV presents a regression analysis of these data that it claims demonstrates that college football games have migrated from non-network broadcast television to cable. The INTV equation is estimated using ten observations (one for each year from 1984-93). The dependent variable is the logarithm of the number of non-network games telecast and the independent variables are the number of games cablecast, a time trend variable (taking on the value of one in 1984, two in 1985, etc., up to ten in 1993), and three "dummy variables." The dummy variables take on a value of one in certain assigned years and zero otherwise. The equation fits the ten-observation set of data very well and the coefficients of the variables are all statistically significant. However, INTV provides no overall explanation (or "model") of the mechanism of sports migration and in particular fails to explain what the dummy variables signify and why they were included in the equation. These factors make it difficult to evaluate the regression and impossible to conclude that it establishes a causal link between cablecasts and non-network broadcasts. 78. INTV bases its conclusion regarding migration on its determination that the coefficient of the cable variable is negative and statistically significant. However, INTV apparently did not test for the effect of broadcast network coverage on non-network coverage. INTV's own citation of aggregate data for 1988-92 suggests that part of the evolution of broadcast coverage is from syndication to network coverage. Inclusion of a network variable in the equation could affect the magnitude and statistical significance of the cable coefficient. Moreover, there is a statistically significant correlation between the time trend and games cablecast variables. This condition, known as "multicollinearity," can also affect the reliability of coefficient estimates. Additionally, there may be some difficulties with the way certain variables are defined. First, the non-network coverage variable appears to be a mixture of live and tape-delay games (some noted as such in INTV's background table and some not). It is likely that the determinants of live and tape-delay games are different. Second, the cable data for 1992 and 1993 include substantial numbers of pay-per-view games that appear to be out-of-market exhibitions of games licensed for broadcast by ABC and actually broadcast in other parts of the country than the nine markets in INTV's sample. It is not clear that these games should be treated identically to exhibitions of games licensed to cable networks. 79. It is also important to note that the time trend variable in INTV's equation has a negative and statistically significant coefficient. This coefficient implies that, in INTV's formulation, non-network broadcasts of college football games would have declined at a rate of eleven percent per year even if there were zero cablecasts and all other factors were held constant. For the reasons discussed above, we cannot accept INTV's equation as establishing that college football games have migrated from non-network television to cable. 80. Although INTV's regression analysis is inadequate for the reasons stated above, the downward trend in non-network telecasts that INTV documents demands further analysis. Moreover, we are also charged with assessing the causes of any sports programming migration. As noted above, INTV's own comments suggest the possibility of a shift in broadcast distribution patterns from national syndication to network delivery. However, INTV submits that preclusive contracts between college athletic conferences and video programming vendors are the cause of college football migration. Preclusive contracts, i.e., those that prohibit live or delayed broadcast by a local television station of local colleges' sporting events not shown locally on cable, are analyzed in detail below. 81. Non-network telecasts of college football teams peaked in 1985 at 237 for the INTV sample. Our examination of those games shows that only 56 of them involve local teams. In 1993, the year of fewest non-network telecasts (42), 15 involved local teams. While local telecasts of local games clearly dropped, the magnitude of the drop is smaller than the aggregate figures suggest. Most of the decline in non-network college football broadcasts is accounted for by out-of-market games. Without tracking the actual complement of games telecast in each year, we are unable to determine with certainty how much, if any, of the change represents movement from national syndication to network and how much, if any, represents migration to cable. 82. To support its assertion that preclusive contracts have hampered non-network coverage, INTV presents figures on non-network telecasts of games involving Big 10 and Pac 10 teams. The figures show a drop between 1984 and 1993 from 16 to three in telecasts of games involving Pac 10 teams and from 33 to seven in games involving Big 10 teams. However, seven of the 16 Pac 10 games are Pac 10 home games with starting times after 3:10 p.m. Pacific Time, ten of the 33 Big 10 games in 1984 began after 6:15 p.m. ET, and several more of the Pac 10 and Big 10 games began prior to 12:30 p.m. ET. Thus, while time period restrictions such as those discussed below in the section on preclusive contracts conceivably would not have barred many of the 1984 non-network broadcasts, we are unable to conclude that the decline in non-network telecasts of games of these two conferences was not in part attributable to the time period exclusivity clauses in national broadcast or cable football contracts. 83. The record indicates that there is an abundance of college football available to the public on both broadcast and cable television. Broadcast network and cable coverage have both increased in recent years, and the impending break-up of the CFA suggests that broadcast coverage will increase further. There is, however, some evidence that non-network coverage of college football has declined since 1984, and that decline has not been fully offset by the increase in network coverage. While we cannot conclude that the decline reflected in INTV's nine-market sample represents a significant migration trend or that the nine-market sample is representative of the nation as a whole, we also cannot conclude that such decline is not attributable in part to the provisions in such contracts that impose conditions on the local broadcast of games involving local teams. For this reason, we shall continue to monitor developments in this area and, if warranted, take appropriate regulatory action. 3. College Basketball a. Comments 84. According to the National Collegiate Athletic Association ("NCAA"), every one of the 63 tournament games in the Final Four Tournament in Division I mens basketball was carried, in whole or in part, by broadcast television. In fact, the NCAA indicates that there has actually been reverse migration because many of the first round Final Four Tournament games were previously telecast only on cable (ESPN). 85. With respect to lesser known basketball conferences, Sun Belt Conference ("Sun Belt") and Southland Conference ("Southland") both state that they have been unable to obtain broadcast station and/or network coverage of their sports events, primarily men's and women's basketball, and thus have contracted with regional and national cable sports networks. Cable coverage is therefore extremely important to these conferences; it enables them to obtain television exposure outside of their local markets, thus enhancing both the member schools' recruiting potential and viewing opportunities for students, alumni and fans. b. Findings 86. The information submitted in response to the Further Notice indicates that our initial conclusion that college basketball games have not migrated to subscription media remains correct. In fact, we find that there is evidence of some reverse migration of games from cable to broadcast television. Thus, today there are more college basketball games available on broadcast television than on cable. Moreover, in the case of lesser known basketball conferences, cable has provided the only television coverage beyond limited local market exposures. We therefore affirm our initial conclusion that there has been no migration of college basketball games to cable and that cable in fact serves an important role in covering college basketball games that would otherwise not be televised at all. F. Other Sports 1. Background 87. The Interim Report stated that cable and collegiate commenters indicated that national and regional cable sports networks provide coverage of a wide variety of previously untelevised professional and amateur sporting events, as well as sporting news, commentary and other informational programs involving specific sports, fitness and outdoor activities. According to the Interim Report, a number of commenters specifically mentioned the decline of professional boxing on broadcast television, noting that boxing has essentially moved to cable and other subscription services. As to the reasons for this trend, ABC agreed that boxing has essentially moved from broadcast to cable and other subscription services, but argued that boxing has a more specialized audience than other sports listed in the Notice and that it does not have as extensive a history on broadcast television. NCTA asserted that boxing was abandoned by broadcasters before the inception of cable networks, and argues that cable has brought regular coverage of boxing back to prime time. The Further Notice requested additional comments on the migration of any sporting events other than those in professional football, basketball, baseball and hockey, and college football and basketball, as well as any other relevant topics not otherwise specifically identified. 2. Comments 88. With respect to the Olympic Games, the National Cable Television Association ("NCTA") points out that NBC has announced that it will not take a cable partner for televising the 1996 Summer Olympic Games. In addition, consistent with the Interim Report, ARC states that cable sports networks, particularly regional sports networks, televise a wide variety of sporting events never previously carried by broadcast television. ARC submits that, unlike broadcast stations which face pressures to clear network-provided programming during most of their broadcast day, regional cable sports networks are devoted entirely to sports and can experiment with coverage of new events. In several cases, such as women's college basketball and professional beach volleyball, sports which were first carried on cable have gained enough popularity to attract broadcasters, resulting in reverse migration. Regional cable networks also serve the public interest objective of local origination of programming, by providing television coverage for the first time to teams from local colleges and high schools, or to other events, such as the Special Olympics. 89. In this connection, since 1989, Home Sports Entertainment ("HSE"), a regional sports cable service, has produced and carried an annual two-hour special covering the Texas Special Olympics ("TSO") Summer Games and has repeated the program four to five times each year, while broadcast television only provides occasional short news stories and documentaries about the Special Olympics. TSO states that it derives substantial benefits from this regional cable coverage, including improved recruitment, enhanced benefits for Special Olympians, increased exposure of TSO events to an entirely new audience, i.e., sports fans, and improved public perception of mental retardation. According to TSO, the public relations and educational value of such exposure is "incalculable." 90. HSE also provides coverage of sporting events of University Interscholastic League ("UIL"), a league comprised of public high school teams in Texas. UIL asserts that broadcast television stations and networks have no interest in carrying UIL events and regional cable networks provide its only television outlet. For instance, HSE provides live coverage of UIL state finals in boys basketball, football and baseball, highlights of state track & field, tennis and golf championships and provides weekly shows highlighting UIL teams. Broadcast television, on the other hand, has only carried one UIL sporting event live. UIL sought bids for live coverage of the state championship games now carried by HSE and no broadcasters expressed an interest, even when UIL offered to make them available for free. 91. The commenters also support the Commission's initial conclusion that there is no migration of other college sports from broadcast to cable. The University of Denver ("Denver") submits that the FCC should not overlook the substantial and tangible benefits resulting from cable coverage of college sports events. Denver hockey games have been televised by regional sports networks in the U.S. and in Canada, thereby generating significant interest in the school on the part of prospective students and student athletes. This wide- spread exposure would be impossible to obtain on broadcast television and cable coverage has also helped fund-raising efforts among Denver alumni. For these reasons, Denver believes that regulations restricting cable coverage would adversely affect Denver and sports fans alike. 3. Findings 92. The record indicates that there is no evidence of migration in other college, professional or amateur sports. In fact, the growth in cable sports programming appears to have benefited lower profile sporting events, such as the Special Olympics, by providing television exposure to sports that would otherwise be unable to obtain it. We also find no evidence in the record to indicate that anything other than pure market forces is responsible for the lack of broadcast coverage of these events. We agree with ARC that the nature of regional cable networks allows them to be more flexible than broadcast stations in choosing material for carriage. Thus, the growth of cable sports programming in this area appears to indicate an increase in viewer choice rather than migration from free over-the-air television to cable, and should therefore be considered to be in the public interest. III. PRECLUSIVE CONTRACTS A. Background 93. The 1992 Cable Act directs the Commission to "analyze the extent to which preclusive contracts between college athletic conferences and video programming vendors have artificially and unfairly restricted the supply of the sporting events of local colleges for broadcast on local television stations" and, in consultation with the Attorney General, to "determine whether and to what extent such preclusive contracts are prohibited by existing statutes." The Act defines a "preclusive contract" as a contract which prohibits a local television station from presenting either a live local college event that is not carried live by any local cable system or a local college event shown on a tape-delayed basis that is not carried, live or tape-delayed, by a local cable system. 94. In the Notice, we asked whether there is a significant connection between preclusive contracts and migration of games to cable, and sought comment on the economic and social consequences of preclusive contracts. Commenters' arguments regarding preclusive contracts focused on college football. In the Interim Report, we found that the precise interplay between the various contracts was difficult to discern from the comments filed. INTV argued that the net effect of preclusive contracts is to prevent individual stations from contracting separately with individual schools to televise games of local or regional interest during the most popular Saturday afternoon viewing periods. Other commenters, such as Capital Cities/ABC, Inc. ("ABC"), the CFA and ESPN, argued that their football contracts are not preclusive because they permit broadcast stations serving the markets of the competing teams to televise games at any time, including during the exclusivity windows. 95. Based on the information available to us in the Interim Report, we did not believe that we could make specific findings regarding the existence, prevalence, or legality of preclusive contracts. Therefore, our Further Notice sought additional comments on how the various contracts operate. In particular, we asked for information on: (1) specific exclusivity provisions in contracts for college football rights; (2) the economic impact of the "home team exception" and short notice provisions; (3) the relevant product and geographic markets for telecasts; (4) efficiencies promoted by such contracts; (5) increases or decreases in quantity and/or quality of sports programming; and (6) the role of pay-per-view. 96. In the Interim Report, we indicated that we would analyze preclusive contacts under the antitrust laws, consistent with our statutory mandate to determine whether and to what extent these agreements are prohibited by existing statutes. In the Further Notice we stressed that in undertaking this analysis we would not adjudicate whether specific contracts violate the antitrust laws. We have decided, however, that based on the record in this proceeding and judicial precedent relevant to the contracts of the type at issue here, we will address in this Final Report to Congress whether and the extent to which these preclusive contracts raise competitive concerns. B. Comments 1. Contractual Provisions 97. Several parties have submitted more detailed comments regarding specific exclusivity provisions in college football contracts. ABC submitted information regarding its contracts with the CFA, the Pac 10/Big 10, the ACC and the Big Eight. ABC's contract with the Pac 10/Big 10 gives ABC the exclusive television rights to all Pac 10/Big 10 home games during the three and a half hour window in which ABC is televising a Pac 10/Big 10 game. Outside of this window, any telecaster (other than CBS, NBC or Fox) may televise any Pac 10/Big 10 games not broadcast by ABC. Even during this window, games may be televised under several circumstances: (1) the game begins on or after 6:15 p.m. ET, or on or before 12:30 p.m. ET, on Saturdays on which the ABC game begins at 3:30 p.m. ET or the game begins on or after 3:10 p.m. when ABC's game begins at 12:30 p.m. ET; (2) any home game of Pac 10 members that begins on or after 3:10 p.m. Pacific Time may be syndicated for live telecast in multiple areas; and (3) home games of Pac 10 and Big 10 members may be televised by closed circuit to the campuses and alumni clubs of participating schools at any time. 98. ABC's contract with the CFA gives ABC limited exclusivity rights to televise the home games of CFA members generally in the late afternoon time period (3:30 p.m.-7:00 p.m.) on Saturdays. Outside of that time period, any third party may televise CFA games, with certain start time restrictions to minimize overlap with the ABC telecast period (games must start before 12:10 p.m., or 12:40 p.m. for SEC games). The contract also allows non- ABC telecasts at any time in the home town of the participating schools, closed circuit and pay-per-view telecasts, and national late afternoon cable telecasts. Also, because the local time of the kickoff is controlling, west coast games can be televised live in the east in mid- afternoon. The CFA contract expires in 1995 and will not be renewed, due to the break-up of the CFA. 99. In addition, ABC has reached agreements with two former CFA members -- the ACC and the Big Eight -- for the exclusive rights to their home games beginning with the 1996 season. The primary ABC exclusive telecast period is Saturday from 3:30 p.m. to 7:00 p.m.; no other ACC or Big Eight telecasts may be shown during this window, even in the home towns of the participating schools. Outside this period, any non-network third party may show these games with certain start time restrictions for regional cable syndication (Big Eight) and for syndication and cable telecasts (ACC). Also, on a limited number of dates, ABC has rights to telecast games in other time periods. As of the Further Notice's comment deadline, final details on these agreements were being worked out. 100. ESPN states that it continues to cover games under contracts with the CFA, the Big 10 and the Pac 10, as well as having agreements to cover the NCAA Division II and III play-offs with various post-season bowl and all star games. When various conferences and independent schools decided to break off from the CFA after 1995, ESPN entered into agreements with the ACC and the Big East for ten and twelve games, respectively, during the 1996 season, with coverage on ESPN2 contemplated. ESPN is negotiating with other former CFA members as well. ESPN's agreements grant it exclusive rights to games, although games not telecast are available for local broadcast, subject to the exclusivity provisions as to certain time periods: CFA games may be shown from noon to 3:30 p.m.; Pac 10 games any time but 3:30 p.m. to 7:00 p.m.; and Big 10 games after 7:00 p.m. The CFA contract also permits schools to televise locally games not selected by ESPN during its telecast window. ESPN states that the CFA break-up and the impending new contracts that will be negotiated make the scope of coverage after 1995 unclear, although it seems that the volume of games televised will increase. Agreements are already in place for 1996 college football coverage on ABC, NBC, CBS, ESPN, ESPN2 and Prime Network. If history is a guide, according to ESPN, the sale of television rights at a conference level (such as in college basketball) will result in continued wide-spread distribution of college football at the national, regional and local levels. 101. The Pac 10 states that, in addition to its contracts with ABC and Prime Ticket Network ("PTN"), individual Pac 10 members may negotiate contracts with local stations or cable companies for their local games, provided that the agreements do not conflict with the ABC and PTN contracts. Unlike the ABC and PTN telecasts, most of the local telecasts are on a tape-delayed basis, which Pac 10 schools purportedly prefer because it is less likely to affect live attendance, an important source of revenue. 102. CBS Inc. ("CBS") submits that its agreements (for coverage beginning in 1996) with the Southeastern Conference ("SEC") and the Big East include opportunities for local home team broadcasts. Broadcast rights for all games not selected by CBS (about 120 SEC and 76-79 Big East games per season) will remain with the respective conferences. The SEC may permit unrestricted broadcast of any non-network game within its home market and also may allow non-network games to be carried on pay-per-view within the home states of the playing teams and on closed circuit for alumni viewing. All of these games, including home market broadcasts, may air at any time, even opposite an SEC game broadcast by CBS. Non- network SEC games may be telecast to a regional audience on broadcast or cable if kickoff is before 12:40 p.m. or after 6:10 p.m., or, if the game is tape-delayed, after 11:00 p.m. The Big East contract authorizes broadcasts of home market games not selected by CBS, as long as kickoff is before 12:10 p.m. or after 6:10 p.m. Syndicated telecasts of non-network Saturday games on a regional basis are also allowed if the game begins before 12:10 p.m. or after 6:10 p.m., or tape-delayed after 11:00 p.m. Visiting Big East teams playing against non- Big East teams may appear on television pursuant to agreements negotiated by the home team. 103. With respect to the delivery of college football games via pay-per-view, the University of Arkansas ("Arkansas") submits that it has authorized only two pay-per-view games in the last five years and that it currently does not have a formal pay-per-view program. Arkansas intends to keep the rights to games and to grant pay-per-view rights only on a per-game basis. The University of Miami ("Miami") states that during the 1993 football season it played three games which were televised regionally by ABC and which were also carried in some regions of the country on pay-per-view. Miami did not appear on any pay-per-view transmissions in 1992, and only one pay-per-view transmission in 1991. ABC states that it will continue its pay-per-view plan for the 1994 season. In general, under ABC's pay-per-view plan, the regional game of the greatest local appeal will be broadcast over the air in a particular area. Games are broadcast over the air in areas where they are the most desirable, and offered simultaneously as pay-per-view alternatives in other areas. 104. INTV submits that preclusive contracts effectively prohibit local broadcasts of local games. According to INTV, the only options for local broadcasters are to convince schools to play games either earlier or later, show games on a tape-delayed basis, or attempt to sublicense games from regional sports channels. In addition, because the major networks have contracts with several conferences, even if a window opens under one contract, a local broadcaster may be limited by an additional exclusive window under another contract. INTV also claims that the short notice provisions, which allow games to be selected for broadcast or cablecast on six to twelve days advance notice, make it difficult for local stations to obtain rights to local games. According to INTV, schools are reluctant to contract with local stations because they are not sure whether their games will be selected for national telecast by ABC or ESPN. INTV states that such short time frames also make it difficult for local stations to produce and market games. 105. ABC argues that short notice provisions are important to its ability to create a season-long package that will attract the largest audience by showing the best match-ups as the season progresses. CBS states that short notice provisions are extremely important to networks' realizing their full investment in college sports rights and that these provisions should not be a problem for broadcasters, who are in the business of covering news and events of importance on notice of less than to six to twelve days. CBS asserts that if local broadcasters want to contract with schools for rights to home games, there is nothing to prevent them from negotiating a contract with the school for a certain number of games, with a contingency for games later selected by the primary rights holder. 106. According to some commenters, the decline in local broadcasts is due simply to market forces unrelated to the exclusivity provisions in contracts for rights to games. These parties claim that local broadcasters are not broadcasting games because they do not want to (i.e., because other programming is more profitable), rather than because they are unable to. Conversely, INTV claims that the primary, if not only, reason why there are fewer college football games on local broadcast stations is not that local broadcasters do not want to televise college football games, but that exclusivity provisions in existing contracts have made it virtually impossible for local stations to obtain the rights to broadcast any local games. To support this assertion, INTV points to several examples of local stations which assert that they have been unable to secure the rights to broadcast certain local games due to preclusive contracts with broadcast or cable networks. INTV also argues that it is inconsistent for ABC simultaneously to argue that local broadcasters do not want to televise games, and to require exclusivity provisions which prevent local broadcasters from acquiring the rights and broadcasting competing games. 2. Procompetitive Efficiencies 107. ABC and CBS argue that time period exclusivity provisions in their contracts with college football conferences are procompetitive. ABC states that its contracts (and other college football contracts) are the result of intense competition among telecasters and that contracts are won by effectively outbidding other national, regional or local telecasters. A college football league or association's decision to sell the rights to its games is based, according to ABC, on which telecaster offers the most benefits in terms of rights fees, quality of production, scope of telecast and equitable exposure for each school. ABC and CBS submit that their contracts are structured to increase the size of their viewing audience, thus making these telecasts particularly efficient and valuable vehicles for advertisers. Without these efficiencies, ABC and CBS claim that they would receive less advertising revenue, and thus would not be able to bid as much for college football telecast rights, or to produce high quality telecasts. By increasing the value of telecasts to advertisers, exclusivity provisions enhance broadcasters' ability to compete against cable programmers in bidding for rights to televise college football games, and thereby reduce the likelihood of migration from broadcast to cable. 108. The college athletic conferences filing comments all agree that exclusivity provisions are important to sustaining widespread interest in college football. Although the Pac 10 states that it did not affirmatively choose to enter into the exclusivity provisions in its contracts with ABC and PTN, these contracts have increased Pac 10 exposure, which is very important to the conference and to its individual member schools. The ACC submits that time period exclusivity has made the "ACC Game-of-the-Week" package economically viable over a syndicated network of individual broadcast stations, and that time period exclusivity, first selection of member school games and twelve-day notice provisions all maximize opportunities for consumers to see the best games on a given Saturday. 109. INTV, on the other hand, argues that ABC and ESPN's college football contracts are inconsistent with basic competition law principles. INTV states that ABC's argument that exclusivity provisions are procompetitive is unsupported by various court cases, which are discussed in detail below. INTV also relies on a Federal Trade Commission ("FTC") proceeding (also discussed below), and, in particular, Complaint Counsel's Non- Binding Statement for the proposition that time period exclusivity provisions are not procompetitive. INTV submits that although ABC claims that its contracts with the CFA, the Big 10 and the Pac 10 promote economic efficiencies by increasing its viewing audience and enhancing the value of its telecasts, ABC never quantifies these purported efficiencies or relates them to the time period exclusivity and short notice provisions. 3. Market Power 110. ABC argues that it does not have market power in either of the two markets that it believes are relevant to its college football contracts, that is, downstream advertising markets, in which telecasters sell advertising time and upstream television rights markets, in which colleges sell television rights to telecasters. In downstream advertising markets, ABC states that it is difficult to delineate the parameters of the market for antitrust purposes without a detailed factual analysis, but that it believes that the product market in which advertising for college football telecasts is sold includes advertising on all sports programs and on many other kinds of programs, that the product market includes all television media (broadcast, syndicated and regional telecasts and cable) and print media, and that the geographic market is nationwide. Given such a broad market, and the fact that market shares are low, commercial relationships ephemeral and competition intense, it is impossible, according to ABC, for any telecaster to profitably raise prices above competitive levels or otherwise exercise market power in the advertising market. 111. Similarly, in the upstream television rights markets, ABC claims it does not possess monopsony power, due to the intense competition among telecasters for rights to televise college football games and other sports events. ABC states that this competition is evidenced by the recent break-up of the CFA, changes in telecasting rights for the SEC, Big East Football, the NFL, MLB, the Olympics and the general escalation of rights fees. ABC goes on to argue that since no telecaster could exercise market power in the advertising markets even if it were able to buy the bulk of the rights to any one league or association, it is unlikely that any existing league or association of teams has market power on its own. ABC distinguishes the Supreme Court case, National Collegiate Athletic Assn. v. Board of Regents of the University of Oklahoma, on this point by stating that, although in that case the Supreme Court found that the right to televise college football was the relevant market and that the NCAA completely controlled this market, today no one league controls even a majority of the rights to games, and the industry as a whole has changed significantly since 1982. 112. INTV counters that ABC and ESPN, which have contracts with almost every major college conference in the country, do have market power. First, INTV argues that ABC's definition of the relevant product market -- covering all forms of entertainment programming -- is inconsistent with the definition adopted by most courts. INTV asserts that in NCAA and a second case, Regents of University of California v. ABC, Inc., the court defined the relevant product market as broadcasts of intercollegiate football games. INTV states that in another case (in which it was the plaintiff), Assn. of Independent Television Stations, Inc. v. College Football Assn., the CFA admitted the relevant product market was the rights to intercollegiate football games. INTV adds that ABC's definition is inconsistent with the 1992 Cable Act, which directs the FCC to examine these contracts as they relate to college football. Thus, INTV argues that Congress has defined the market in terms of college football games available on free, over-the-air television. C. Findings 113. As required by the statute, our analysis of preclusive contracts is twofold. First, we must determine whether preclusive contracts have artificially and unfairly restricted the supply of local broadcasts of local games. The second step is to determine, in consultation with the Attorney General, "whether and to what extent such preclusive contracts are prohibited by existing statutes." The only relevant laws suggested by the commenters are the federal antitrust laws. Thus, we will examine college football contracts based on an antitrust analysis. 1. Impact of Contracts on Supply of Local Broadcasts 114. As a threshold matter, with respect to tape-delayed games, there is no evidence in the record to suggest that local stations are restricted from broadcasting local college football games on a tape-delayed basis. Thus, we find that these contracts do not preclude the telecast by local stations of a local college football game on a tape-delayed basis. 115. Second, with respect to live broadcasts, we note that it is questionable whether contracts which contain a "home market exception" are in fact "preclusive contracts" at all, since this type of exception allows local telecasts at any time in the home towns of the participating schools. For example, under the terms of the current ABC/ESPN/CFA agreements, non-ABC and non-ESPN telecasts may be shown at any time in the home town of the participating schools. Similarly, under the CBS/SEC contract, the SEC may permit unrestricted broadcast of any non-network game within its home market. Thus, these contracts are not per se preclusive because they do not explicitly prohibit a local television station from presenting a live local college football game that is not carried, live or tape- delayed, by a local cable system. 116. Third, no party has suggested that contracts that do not contain a "home market" exception completely prohibit live local broadcasts. In fact, the record indicates that local telecasts are always permitted if the game start time is appropriately scheduled so as not to conflict with the networks' exclusive time period. While we recognize that the exclusive windows are often the most desirable time periods to broadcast games, we cannot find that contracts without a home market exception are per se preclusive. 117. We are concerned, however, that short notice provisions, which allow games to be chosen for telecast on either six or twelve days advance notice, may restrict the ability of local stations to avail themselves of the opportunity to televise live some local games, making it difficult to effectively produce and market a game or to move the kickoff time so as to avoid exclusive windows. Despite the home market exception, these short notice provisions may indirectly operate to preclude the availability of such games on local stations. These provisions do, however, facilitate wide spread regional or national exposure of the most important and popular games of the season. Nonetheless, if short notice provisions are overly burdensome or restrictive, they might well have effects similar to those of a preclusive contract by decreasing the number of games involving local teams available for broadcast in the local market. While the evidence is unclear whether the decline in certain markets of home team games on local stations is in fact directly attributable to these provisions, it does raise a serious question of whether such provisions have a preclusive effect on local stations' exercise of their rights under the home market exception. 118. Finally, we believe that it is our obligation to analyze the effect of preclusive contracts from a public interest perspective as well. Although we find that overall the viewing public today has more college football games available than ever before -- on both broadcast and cable television -- we recognize that Congressional concern over preclusive contracts focused on the impact of these contracts on local broadcasts. However, as discussed above in Section II.E, we are unable to conclude that preclusive contracts, including those with short notice or broadcast time limitations, have a detrimental effect on local broadcasts. While television coverage of college football games today is provided by more video programming providers than ever before, including broadcast networks, independent stations, syndicators, and national and regional cable sports networks, there is some evidence of a decline in the availability of local team games on local stations. As discussed in greater detail in Section VI below, the Commission remains committed to the public interest goal of fostering diversity of programming. While we do not find that preclusive contracts have negatively impacted overall program diversity, we are concerned with the availability of local team games on local stations and will continue to monitor developments in this area. 2. Analysis under the Antitrust Laws 119. As required by the statute, we consulted with the Department of Justice on the application of the antitrust laws to the preclusive contracts at issue in this proceeding. In its letter to us, the Department suggested that the lawfulness of these contracts under the antitrust laws should be tested under what is known as a "rule of reason" analysis. According to the Department, in such an analysis, the potential anticompetitive effects of a practice are balanced against the potential procompetitive effects in order to assess whether the contracts have the effect of limiting or increasing output. The Department suggested that in undertaking this analysis, we consider the relevant markets, the market power of sports leagues and programmers, and the efficiencies flowing from the exclusive contracts. 120. As discussed above, we have asked for and have received comments on these factors. The commenters have also referred us to case law and other proceedings, which they suggest are applicable to an antitrust analysis of the preclusive contracts. We believe that these authorities are important to our evaluation of the lawfulness of preclusive contracts, and begin with a review of the applicable law. 121. Section 1 of the Sherman Act prohibits contracts and conspiracies in restraint of trade. In NCAA, the Supreme Court considered whether the various restrictions imposed by the NCAA on its members in the televising of college football games were unreasonable restraints of trade in violation of Section 1. As commenters on both sides of the issue recognize, NCAA is the starting point for any antitrust analysis of the college football practices that are the subject of our Report. 122. In NCAA, the Court noted that NCAA member schools "compete against each other to attract television revenues, not to mention fans and athletes." Relying on factual findings of the lower court after a full trial, the Court observed that the NCAA's television rules prevented members from competing against each other on the basis of price or kind of television rights, and restrained the quantity of television rights available for sale, thereby limiting output. These sorts of agreements among competitors are ordinarily condemned as "illegal per se," that is, without the need for further inquiry into market circumstances. The Court, however, declined to apply a per se rule to the NCAA restraints, noting that college football is "an industry in which horizontal restraints on competition are essential if the product is to be available at all." For this reason, even though the trial court found that the NCAA television rules inhibited price and output competition among member schools, the Court concluded that "a fair evaluation of their competitive character requires consideration of the NCAA's justifications as well." 123. The Court, however, rejected the NCAA's argument that its asserted lack of market power vitiated any anticompetitive effects from its television plan. Again, relying on the trial court's factual findings, the Court held that "when there is an agreement not to compete in terms of price or output, no elaborate industry analysis is required to demonstrate the anticompetitive character of such an agreement.'" Thus, the Court held as a matter of law that the absence of proof of market power cannot justify a naked restraint on price or output. Rather, a "naked restraint on price and output requires some competitive justification even in the absence of a detailed market analysis." 124. While NCAA appears to provide a relatively straight-forward legal framework using a "quick look" rule of reason approach, in our view, its application depends upon detailed factual findings. As we will discuss, we do not believe that the record in this proceeding lends itself to the sort of detailed findings required by NCAA or the rule of reason analysis suggested by the Department. Nor does it appear that in any of the actions cited in the record (which involved contracts similar to the ones at issue here) was there a conclusive finding on the lawfulness of the preclusive contracts. 125. As we noted in our Interim Report, the FTC issued an administrative complaint against the CFA and ABC under Section 5 of the FTC Act, which stressed the alleged similarity between the rules struck down in NCAA and the CFA rules themselves. However, the record reflects that the case was dismissed on jurisdictional grounds relating to the CFA's alleged non-profit status, and an appeal is now pending before that Commission. The following has been put in the record from that case: the complaint, the parties' non- binding pre-hearing statements, and certain interrogatory responses of the CFA. Based on this evidence, we are unable to do more than report that these allegations have been made. Whether these allegations make out a violation of the antitrust laws must await adjudication on the merits. 126. We have similar concerns with a Ninth Circuit decision relied on by INTV. There the California Regents obtained a preliminary injunction against application of a provision in the CFA contracts, which was used by ABC to bar the broadcast on CBS of two games, each involving a CFA member and a non-CFA member California school. The district court, however, did not reach any final conclusion on the merits of the plaintiffs' case or the legality of the CFA contracts. The court did determine, as one element of the standard for granting a preliminary injunction, that the plaintiffs' had "presented serious questions indicating a fair chance of success on the merits." Thus, were we to adopt the Regents case as our own, at most we could only conclude that the CFA/ABC contract in force at the time "raised serious questions" under the antitrust laws. 127. However, we must also take note of the dissent in the case which agreed that while "serious questions" may have been raised by the plaintiffs, the plaintiffs should have been held to a higher standard of proof: "a strong likelihood of success on the merits." The dissent concluded that the likelihood of success on the merits shown by plaintiffs was not sufficiently strong and that close issues were presented for trial. Significantly, the dissent noted that the contract's exclusivity provisions might have a lawful procompetitive purpose -- allowing ABC and the CFA to develop a national college football television package. Moreover, the dissent argued that the agreement could be fairly characterized as a vertical non-price restriction, which would stimulate interbrand competition among competing network television packages. 128. The approach of the dissent in Regents is consistent with the rule of reason approach that the Department of Justice suggested we apply in this proceeding. Significantly, the dissent's reasoning in Regents was also followed by the court in INTV, a case in which INTV challenged, inter alia, predecessor CFA/ABC and CFA/ESPN contracts, similar to those at issue here, and made virtually identical claims about the anticompetitive effect of those contracts. Of particular importance to our analysis is that in its court case against the CFA and ABC, INTV sought a summary determination that the agreements at issue violate the antitrust laws. The court, faced with a record that appears far more developed than the record in this proceeding, concluded that questions of material fact on virtually every relevant issue precluded grant of the motion. 129. Thus, for example, the court held on the record before it that INTV had not established beyond dispute that the agreements were naked restraints which would be subject to either per se treatment or the quick look rule of reason under NCAA. Moreover, the court recognized that some horizontal arrangements "even though their force may be felt in usually sacrosanct areas such as price and production, may be justified if their purpose and effect are to increase competition as a whole." In the case of college football, the court noted that notwithstanding the NCAA case, [i]n the marketing of television rights, just as in the management of the live contest itself, some cooperation is necessary if the product, live college football television, is to be available at all. Such arrangements should not be denied fair market analysis unless and until it appears that they are naked restraints on competition. However, on the record before it, the court found that genuine factual disputes precluded a finding that the provisions were naked restraints on price and output. 130. The court also held that the CFA's assertions that it was a legitimate joint venture, and that the restraints permitted the packaging and sale of an otherwise impossible national series of games, if true, entitled the CFA to further market analysis. Moreover, the defendants characterized the arrangements as marketing agreements that impose limited and necessary "intrabrand restraints" in order to enhance interbrand competition. The court, however, noted that, on the record before it, it could not resolve the lawfulness of the restraints: Since the product of one college football team alone is without apparent value, some combinations of competing institutions must be necessary and therefore reasonable. These combinations also must be capable of enforcing some collective regulation upon their members to achieve intrabrand stability and thus bolster their competitive positions. Thus, the court felt constrained to determine, as a threshold matter, whether each competitor, pair of competitors, conference, or larger combination of teams constitutes a "brand" of intercollegiate football. Moreover, in order to assess the reasonableness and competitive effect of the restraints, the court was required to determine the market power wielded by the entity imposing the restrictions. The question of market power, however, turned on the definition of the relevant markets in which the defendants competed, which itself was a seriously disputed issue. 131. With respect to output restrictions, the court noted that the alleged anticompetitive effects of each of the challenged provisions were contested. In particular, the court noted that the CFA plan was not as restrictive as the NCAA plan with respect to exception telecasts. The court found that the CFA has an open early afternoon window during which CFA members had the right to sell telecasts of those games not selected by ABC under its contract. INTV complained, however, that requiring teams to move games from the Saturday afternoon schedule reduced output, since many CFA members refuse to reschedule their games. The defendants countered that the plaintiffs had failed to prove that more rather than different games were being telecast. On balance, the court concluded that factual disputes prevented the court from summarily judging the anticompetitive effects of the kickoff time restrictions imposed by the CFA plan. 132. As it does in this proceeding, INTV also complained of the network's right of first refusal of the telecast rights to all CFA games until 12 days prior to the date of telecast. Based on the record, the court found that it could not summarily discern whether the agreements were output restrictions, or if they were justifiable and procompetitive. Much as in the instant case, the purposes, necessity, and effect of both the time period exclusivity and the six to 12 day selection deadline were hotly disputed. 133. Using the approach suggested by the Department of Justice and aided by the detailed and thorough analysis of the INTV court, we likewise are unable to determine definitively on the record before us whether the preclusive contracts at issue here violate the antitrust laws. First, with respect to INTV's assertion that the contracts reduce output, we agree, as discussed above, that it may be correct that the number of games on local broadcast stations has decreased. However, without more, we cannot determine whether the preclusive contracts violate the antitrust laws. We note, as discussed above, that the overall amount of college football games on television, including both broadcast and cable, has increased almost fourfold in the past ten years. The record does reflect that Pac 10 exposure has increased as a result of its contracts with ABC and PTN. In addition, we are told that, as a result of time period exclusivity, the packaging of an "ACC Game-of-the-Week" program has become economically viable for distribution over a syndicated network of individual broadcast stations, and that time period exclusivity, first selection of member school games and twelve- day notice provisions all maximize opportunities for consumers to see the best games on a given Saturday. The record is unclear as to whether, in the absence of the preclusive contracts, more games, as opposed to different games, would be shown. The extent to which games that have not been selected for network or cable broadcast are available, but local broadcasters choose not to carry them, is likewise unclear. Nevertheless, there is some evidence in the record of a decline in some markets of local team games broadcast on local stations. 134. Second, even if we could conclude with some certainty that the preclusive contracts limit output in an antitrust sense, we cannot say with any degree of certainty, for the reasons indicated by the INTV court, that the restraints described in the record before us are unreasonable as a matter of law. As discussed above, the record reflects evidence adduced by several commenters that time period exclusivity provisions in their contracts with college football conferences are actually procompetitive and are the result of intense competition among telecasters. There is also evidence in the record from ABC that these preclusive contracts create significant efficiencies which increase the size of a network's viewing audience, thus enhancing the value of these telecasts to advertisers. 135. Third, the record reflects the view of certain commenters that college football contracts allow the most efficient distribution of an attractive package of college games. As discussed above, a number of courts and commenters have recognized the plausibility of this efficiency-enhancing justification. The conundrum with which we are faced, i.e., whether the antitrust laws will condone an association of conferences and independent schools the size of the CFA as an efficiency-enhancing procompetitive vertical arrangement or condemn it as a cartel, has never conclusively been resolved by a court and cannot be resolved on this record. In the absence of an answer to that question, we simply cannot conclude whether the agreements at issue violate the antitrust laws. 136. Finally, with respect to the question of the market power of any of the participants and the definition of the relevant market, as discussed supra, we are faced with virtually the same conflicting evidence and allegations as the INTV court, and conclude that the record is insufficient to conclude with any certainty whether any of the preclusive contracts involve the use of market power, and indeed, what the relevant markets are. Although INTV argues that NCAA and INTV require us to define the market as broadcasts of intercollegiate football games, the INTV case is inconsistent with INTV's position, and commenters question the continued applicability of factual determinations made in NCAA as to the relevant product market. Nor are we persuaded to adopt ABC's much broader definition of the market -- including all sports and other entertainment programs -- without a more detailed factual analysis of the market, which neither ABC nor any other party has provided. 137. In sum, the so-called "preclusive contracts" at issue in this proceeding raise questions under the antitrust laws that do not lend themselves to easy answers. While we do not intend to prejudge the legality of any of these arrangements, we certainly cannot say with any degree of certainty based on the record in this proceeding that these arrangements are completely consistent with the antitrust laws. However, as noted above, we are concerned that college football contracts which have these restrictive provisions, i.e., provisions relating to notice and time of broadcast of local games, may have preclusive effects on the incentive and ability of local broadcasters to televise local team games, and thus we will continue to monitor this area. If evidence should develop in the future that the public interest is being harmed by a decline in the availability of local broadcasts of such games, we can initiate proceedings to determine what measures would be appropriate to safeguard the public interest. IV. SPORTS SIPHONING RULES A. Background 138. Prior to our Interim Report, the majority of commenters stated that the record did not warrant any legislative recommendations or regulatory action with respect to migration of sports programming. In our Further Notice, we invited comment on whether there is a public interest in government action to promote free access to sports programming. We asked commenters advocating sports migration rules to address the Commission's authority to adopt such rules in light of the HBO decision. In that case the D.C. Circuit vacated the FCC's siphoning rules leaving no pay cable programming rules in effect. We requested that commenters include any relevant changes in circumstances since that case was decided in 1977. 139. In the HBO case, the Commission attempted to justify rules that would prevent siphoning of sports material from conventional broadcast television to pay cable. The Commission maintained that it was obligated to impose siphoning rules because "the overall level of public enjoyment of television entertainment would be reduced if sports events were shown only on pay cable or shown on conventional television only after some delay." Specifically, the Commission believed that its "mandate to act in the public interest" required that it strive to maintain the public's ability to receive free access to sports programming on broadcast television. The United States Court of Appeals for the District of Columbia Circuit disagreed, finding no reasonable public interest justification for imposing siphoning restrictions on cable carriage of sports programming. 140. Aside from jurisdiction, another major obstacle to siphoning rules is the First Amendment. The HBO court applied the three-prong test from United States v. O'Brien to the FCC's siphoning rules. Any adoption of siphoning rules must meet the requirements of this test. First, the purpose of the rules must be neutral and unrelated to the suppression of free speech. Second, the rules must further an important or substantial governmental interest. Third, the incidental restriction on First Amendment freedoms must be no broader than is essential to further that interest. Despite the fact that the siphoning rules met the first prong, they were held to violate the First Amendment because they failed to meet the second and third requirements. B. Comments 141. INTV argues that the marketplace has changed significantly since the Court's 1977 HBO decision; it asserts that cable is no longer the fledgling industry that it was in the mid-1970's and that the premises underlying the HBO decision no longer apply. INTV believes that the current evidence clearly illustrates the problem of sports siphoning, and that such siphoning must be checked in order to safeguard the public interest in free television. Therefore, INTV contends that the governmental interest in protecting against siphoning is sufficiently important and that the second prong of the O'Brien test can now be met. INTV also claims that the third prong of O'Brien, that of narrow tailoring, can also be satisfied. INTV states that the old siphoning rules treated many diverse types of programming equally. According to INTV, a new rule aimed precisely at specific sports and/or the elimination of preclusive contracts can be sufficiently narrowly tailored to meet the First Amendment requirements as set forth in HBO. 142. Many commenters believe that nothing submitted during this proceeding should change the conclusions reached in HBO. ABC contends that there is no basis for further legislative or regulatory intervention concerning the telecasting of college football or other sports. Rainbow believes that cable has expanded the availability and diversity of sports programming, and that the FCC should refrain from adopting any rules that would artificially constrain cable's ability to compete in the sports licensing rights market. ESPN states that the sale of telecasting rights to sports events is subject to an ever changing set of circumstances at the national, regional, and local level, which define at any given moment who the buyers and sellers are, what rights are for sale and at what price. ESPN argues that this system should not be disturbed by regulation or legislation which cannot possibly predict the future. ESPN adds that, given the large and growing range of sports programming available today, governmental action is not warranted. Tribune believes there is a strong governmental interest in promoting free public access to televised sports programming and submits that Congress should consider various ways to promote such access. Southland, however, asserts that regulations restricting cable carriage of sporting events would not serve the public interest. 143. In addition to considering whether siphoning rules would serve the public interest, many commenters raise concerns regarding the First Amendment implications of such rules. Specifically, ESPN believes that siphoning rules would implicate First Amendment concerns by abridging colleges' right to choose their means of communicating. ESPN adds that sports migration rules would be content-based regulations and thus unconstitutional, or at least subject to strict scrutiny. MLB contends that siphoning rules, which restrict the ability of sports clubs to place programming on different media, raise serious constitutional problems -- particularly where such restrictions are not imposed upon other programmers with which sports clubs must compete for access to broadcast and subscription services. The NHL argues that INTV's proposed remedy -- the reimposition of sports siphoning rules -- is both economically unnecessary and fails to pass constitutional muster. NCTA states that, regardless of the growth of the cable industry since 1977, the HBO court's First Amendment objections to the Commission's previous siphoning rules are still applicable today. C. Findings 144. The purpose of sports siphoning rules would be to give those not served by cable broader access to sports programming and to maintain a consistent level of free sports programming for the general viewing public. As we noted above, the majority of commenters believe the record does not warrant legislative recommendations or regulatory action. Based on our evaluation of the record, we conclude that siphoning or migration of sports programming is not sufficiently prevalent to justify intervention at this time. We therefore do not recommend adoption of siphoning legislation or regulations at this time. V. ANTITRUST EXEMPTIONS A. Background 145. The Sports Broadcasting Act of 1961 generally exempts television exhibition agreements entered into by professional football, baseball, basketball, and hockey leagues from the federal antitrust laws. In addition, professional baseball enjoys a broader exemption from the antitrust laws. In the initial Notice, we requested comment on the extent to which sports distribution contracts would be different absent the antitrust exemptions provided to professional sports. As indicated by the Interim Report, however, few commenters responded to the Commission's inquiry. The commenters who did address this issue asserted that the Sports Broadcasting Act ensures wide-spread availability of professional sports to the viewing public, and that the shared revenues generated through television contracts have allowed for league expansions, thus increasing the overall number of games televised. The commenters accordingly did not recommend revision of the Act. The Further Notice again invited comment on the effect of the antitrust exemptions on sports programming availability. B. Comments 146. Subsequent to issuing the Interim Report, we solicited additional comments on antitrust exemptions, but few parties responded to that solicitation. Most of the commenters who expressed concern about the antitrust exemptions discussed the exemptions in the context of MLB. INTV claims that MLB has the unique ability to control and limit the supply of games to be telecast, and that the exclusivity arrangements MLB has with the broadcast and cable networks directly relate to MLB's government-sanctioned monopoly. Because MLB is not subject to the same pressures as other program suppliers, INTV submits, MLB can restrict the supply of games in order to increase its revenues. 147. The Major League Baseball Players Association ("MLBPA") asserts that MLB's exemption from the antitrust laws raises serious questions about the protection of the public interest in connection with the telecast of baseball games over all media, including broadcast, basic cable and pay-per-view. MLBPA states that MLB's exemption allows it to organize its telecasts without regard to antitrust laws or to any other form of public scrutiny, and that this does not suggest that the public interest will be considered, much less protected. Because of MLB's antitrust exemptions, MLBPA claims, the MLB team owners "get to decide whether to serve the public interest, and, indeed, what that interest is." MLBPA also comments that MLB's new television contract, which replaces previous years' nationally televised play-offs with a regional format, would be subject to review if the antitrust laws applied to baseball. 148. Sports Fans United, Inc. ("SFU"), believes that MLB's antitrust exemptions allow it to control supply and demand in ways that harm consumers and limit fans' access to televised baseball. SFU states that MLB has divided North America up into exclusive television territories, resulting in fans seeing far fewer baseball games than they would without MLB's antitrust exemption. SFU also believes that baseball's exemption allows MLB to limit the number of teams to fewer than the market will support, which in turn allows teams to threaten to relocate. Consequently, according to SFU, cities have little bargaining leverage with baseball teams. 149. SFU also believes that Congress effectively provided an antitrust exemption to the NFL "through its congressionally approved merger with the AFL," which allows the NFL to maintain an "artificial scarcity" of televised games. The NFL's monopoly power is further enhanced, SFU contends, by the Sports Broadcasting Act. SFU states that it does not object to the Act in its entirety, as it is important to the survival of smaller market teams, but that Congress did not intend the Act to apply to anything other than broadcast television, which means to SFU that the NFL's national cable contracts are a violation of the antitrust laws. With respect to the NBA and the NHL, SFU urges the Commission to ask the Justice Department to investigate both the NBA's and the NHL's exclusive home market television territories to ascertain the extent to which consumers are being harmed by these practices. 150. In addition, Tribune notes that, in its litigation against the NBA, the NBA has claimed that the Sports Broadcasting Act immunizes from antitrust attack the NBA's "Same Night Rule," which limits superstation carriage of NBA games. Tribune asks that our Report advise Congress of the NBA's position in this case. 151. MLB did not address the antitrust exemptions in its comments in this proceeding. On the other hand, other parties discussed the benefits of the antitrust immunities in connection with other sports. For instance, the NHL states that the Sports Broadcasting Act has advanced the interests of fans and consumers by enhancing the ability of sports leagues to market national broadcast packages. According to the NHL, any repeal or modification of the Act would fragment the sale of television rights and would result in fewer games on broadcast television. 152. Similarly, Turner states that the antitrust immunity granted by the Sports Broadcasting Act has increased the financial stability of the leagues as well as the individual teams. Turner asserts, however, that the compulsory license has served as an important counterbalance to this immunity, and that without the compulsory license, leagues could prevent superstation sports carriage. 153. The NBA suggests that consumers have been well served by the ability of professional sports leagues to make joint national sales of exclusive television packages to broadcast networks. Without the Sports Broadcasting Act, the NBA states, every deal could be subject to antitrust attack by an unsuccessful bidder for national rights. Ensuring that such contracts may be entered into without antitrust challenge thus facilitates national over-the-air arrangements. C. Findings 154. While the foregoing provides a useful summary of the commenting parties' perspectives with respect to the antitrust exemptions provided to the professional football, baseball, basketball and hockey leagues, the record before us does not provide us with sufficient information to support either the repeal or the modification of the Sports Broadcasting Act or MLB's antitrust exemption. Accordingly, we cannot, at this time, recommend modification of the Sports Broadcasting Act or MLB's antitrust exemption. VI. POLICY ISSUES 155. This section examines INTV's critique of our definition of migration, the potential causes and consequences of migration, the NFL's plan to offer out-of-market games to sports bars and home satellite dish subscribers, and the impact of pay media on the availability of other sports programming. Our discussion of potential causes and consequences will encompass the issue of "whether there is a public interest in government action to promote free access to sports programming," and the impact of changing technology on the future availability of sports programming. A. The Definition of Migration 156. In the Interim Report we noted that the ideal way to measure sports programming migration would be to compare the number of games actually shown on broadcast television with the number of games that would be broadcast if there were no non- broadcast video distributors. We rejected this standard on the grounds that projections of games broadcast in the absence of subscription media are too speculative and retained our working definition of migration as the movement of sports programming from broadcast television to a subscription medium. One commenter, INTV, challenges this definition and suggests that we should assume that, in the absence of subscription media, the number of sports events on broadcast television would be higher than it is in the presence of subscription media. 157. INTV supports its proposal by arguing that cable networks compete with television broadcasters for sports rights, and if broadcasters had no competitors bidding against them, they would acquire rights to more games. We decline to accept this argument. Television broadcasters have a wide range of programming, both sports and non-sports, from which to choose. They attempt to assemble the most profitable schedule that they can, comparing the expected advertising revenue from each program to the cost of acquiring it. Several commenters have suggested that the emergence of the Fox network has provided new and valuable programming that, in some cases, stations find more attractive than certain sports events. It is possible that, in the absence of subscription media, television broadcast rights fees would be lower (because there would be fewer bidders contending for those rights), but it is not clear how this would effect the relative profitability of sports and non-sports programming. We do not know how much lower these fees might be, and we do not know how viewer interest (i.e., ratings) would change as the number of games broadcast increased. This makes it impossible to calculate how profitability, i.e., the difference between revenue and cost, might differ in the absence of subscription media. 158. Although INTV agrees that if cable and broadcast stations are negotiating for different games or different rights packages, then the Commission's approach to assessing migration is appropriate, it asserts that this scenario does not apply to various major sports. INTV's view of the market does not seem consistent with our findings with regard to MLB telecasts, one of INTV's two areas of concern. There is a striking difference in the type of games broadcast and those cablecast -- in particular, local broadcasts are overwhelmingly of away games, while cablecasts show no such pattern. Broadcast of away games poses no threat to the live gate. If, in fact, teams prefer to license home games to cable networks, because they feel that the need to subscribe to cable provides some protection to the live gate or that cable rights fees provide some compensation for any decline in attendance caused by cable viewing, then home games and away games may be reasonably understood as "different rights packages." MLB data on flagship telecasts for 1994 show that 72.5 percent of local broadcasts are of away games. If one eliminates games on superstations WTBS and WGN (which provide separate national feeds with national advertising, the revenue from which balances some or all of the negative impact on the live gate of local broadcast of a home game), the figure is 77.7 percent. Eliminating the six other superstations (which may receive some increased revenue from national spot advertising sales and for whose cable carriage MLB receives some compensation via the compulsory license) yields a figure of 82.6 percent. Updated figures from MLB regarding regional cable network telecasts show a similar but slightly less pronounced pattern. For the 1994 season, 63.8 percent of regional cable telecasts were of home games and 36.2 percent were of away games. 159. Similar patterns prevail for NBA and NHL telecasts. (Since all NFL games are distributed by national networks, the comparison makes no sense in the NFL context.) During the 1993-94 season, 85.8 percent of local NBA broadcasts were of away games, and 70 percent of regional cable network cablecasts were of home games. With regard to the NHL, during the 1993-94 season, 83.2 percent of local broadcasts were of away games, and 57.9 percent of regional cable network cablecasts were of home games. These data are also relevant to the question of why the increase in cable exhibition of sports events has been greater than the increase in broadcast exhibition. Few commenters address this issue directly, but the NHL and NCTA both endorse the hypothesis, advanced tentatively in the Further Notice that the base level of cable coverage in 1980 was lower than the base level of broadcast coverage, leaving more "room for expansion" in cable coverage. The data on current local coverage of MLB, NBA, and NHL games demonstrate that broadcast coverage is overwhelmingly of away games and that cable coverage is primarily of home games. Comparable data on broadcast coverage in earlier years show that, in 1980, 74.4 percent of MLB local broadcasts were of away games; in 1982-83, 90.5 percent of NBA local broadcasts were of away games; and, in 1981-82, 85.2 percent of NHL local broadcasts were of away games. These figures are consistent with cable coverage expanding primarily by exhibiting games that were not previously available for broadcast. 160. These considerations lead us to retain our definition of sports programming migration and to reject INTV's claim that an increase in cable carriage provides per se evidence of sports programming migration. We agree that, in situations where broadcast carriage of sports programming has increased over time, we cannot rule out the possibility that, in the absence of subscription media, it would have increased by an even greater amount. We address this issue further in the subsection on potential causes and consequences of migration below. B. Potential Causes and Consequences of Sports Programming Migration 161. We have concluded that only a small amount of sports programming migration has occurred, and virtually all of the commenters concur with this assessment. Nevertheless, because we wish to assess trends in sports programming exhibition, it is appropriate to consider how changes in video markets might affect future exhibition of sports programming. Moreover, we believe that, in order to respond adequately to those whose initial assumptions lead them to conclude that substantial migration has occurred, we should outline the consequences of migration and provide a suitable scheme for further analysis. 162. The most salient fact about video distribution since 1980 is the vast expansion in channel capacity, both within broadcast television and from non-broadcast media. Moreover, as several commenters point out, the development of the Fox network has increased competition in program supply to broadcast stations. Press reports indicate that two additional national broadcast networks may be formed soon. The expansion in broadcast capacity has increased fragmentation of the television broadcast audience. This and the increasing competition in program supply have likely reduced the relative attractiveness of certain sports programming. Parties such as MLB, MSG, and Time Warner suggest that, as fewer truly independent stations remain in local markets, the demand for local sports programming may decline. The expansion of cable offerings has also fragmented the video audience. This would be true even if there were no cable sports networks at all. Hence, the impact of cable on the market for sports programming goes beyond the mere addition of another bidder for local rights as suggested by INTV. The audience fragmentation is, to some extent, inherent in the nature of cable television; sports siphoning rules, even if otherwise legal and appropriate, would not eliminate it. 163. Thus, if sports migration does occur, it might be explained in part by irreversible changes in the structure of the video delivery market. For that reason, it is important to consider the economic and social consequences of migration. In the Further Notice, we cited trade press statistics that 98 percent of television households were passed by cable. No one contested those figures. Moreover, cable sports networks are also available via other media, such as home satellite dish and wireless cable. It appears that many of these services will also be available via the new Direct Broadcast Satellite ("DBS") Service. In general, then, the consequence of migration is likely to be not loss of access to sports programming, but the need to pay a fee to acquire it, frequently as part of a larger package of non-broadcast channels. 164. We understand that ESPN is not a premium service and that most of the regional cable networks are not premium services. Thus, as ARC points out, most cable sports channels are on tiers subject to local or Commission rate regulation in the absence of effective competition. ARC argues that, in most cases, we can assume that the rates will be held to "reasonable" levels. The implication is that subscribing to cable at regulated rates to acquire sports programming is not burdensome. ARC also points out that vertically-integrated cable sports networks are subject to Commission program access regulations, which will ensure that rival delivery systems (and their subscribers) have nondiscriminatory access to those networks. 165. Few commenters explicitly addressed the issue of whether there is a public interest in government action to promote free access to sports programming. INTV points out that professional and college teams generally receive public subsidies of one kind or another, such as direct appropriations from state legislature, tax concessions, or assistance in raising funds for stadium construction. INTV argues that this creates an obligation on the part of the teams to provide a certain amount of programming on broadcast television. INTV suggests no standards for deciding how much is appropriate, nor does it explain why the relevant government agencies could not condition their subsidies on provision of broadcast coverage of certain games. Presumably these agencies weigh the pros and cons of appropriations and subsidies prior to granting them and do not do so unless they determine that they bring an acceptable level of public benefits. INTV also refers to the antitrust exemptions under which professional sports operate. While Congress certainly could condition the Sports Broadcasting Act exemptions on some minimum level of broadcast exhibition, any level chosen would be arbitrary. For this reason, and because the Commission seeks to foster overall program diversity, encompassing not only sports but also other varieties of programming, we decline to recommend a minimum sports programming requirement. 166. SFU asserts that "the nation's professional and collegiate sports teams have a responsibility to keep the vast majority of their games accessible and affordable to the public that supports them" and notes that this support includes "a range of subsidies, tax breaks, and antitrust exemptions." Like INTV, SFU proposes no standard for determining the appropriate level of broadcast coverage. It is not clear whether SFU's "accessible and affordable" criterion includes cable carriage. The other commenter that addresses this issue, albeit indirectly, is the National Licensed Beverage Association ("NLBA"). Its advocacy of a new compulsory license for sports bar carriage of sports programming is discussed below. 167. The Commission has always sought to promote the availability of a broad and diverse menu of programming to the American public. We recognize that sports is an important component of that menu, but there are, of course, others as well. We cannot determine what is the "right" amount of sports programming on broadcast television. The record in this proceeding shows that there is a tremendous amount of sports programming on broadcast television and that, for most of the sports and geographic markets that we have studied, it is increasing. The "marquee" events, such as the Super Bowl, the World Series, the NBA Championships, and the NCAA basketball championships, remain on broadcast television. While many households decline to subscribe, cable or other multichannel video programming distributors are available to the overwhelming majority of viewers. Those media offer a vast additional amount of sports programming that, in general, supplements broadcast offerings. Based on this record, we discern no case for additional government intervention in the sports programming market at this time. As noted above, however, we are concerned with the decrease in the availability of local college football games on local stations, and if evidence of injury to the public interest is demonstrated, appropriate action will be taken. C. The NFL "Season Ticket" Package 168. The NFL has announced that its new broadcast contracts call for encryption of the backhaul and network distribution feeds of NFL games. Beginning with the 1994 season, the NFL plans to offer a "season ticket" package of out-of-market games to dish owners and certain commercial establishments, including sports bars. The NFL states that encryption is necessary to prevent "rampant" piracy, i.e., unauthorized viewing by "individual homes, sports bars and other commercial establishments." The NFL package will include all Sunday afternoon regional telecasts except for those blacked out in the area pursuant to the NFL's blackout policy. The annual subscription fee for 1994 will be between $100 and $140 for dish owners (for a 17 week season) and $700-$2500 for sports bars depending on their seating capacity. The NFL will market the season ticket package through multiple non- exclusive distributors. The NFL asserts that this program does not reduce the number of games being broadcast but rather "extends a number of previously regional telecasts to a national audience." 169. NLBA, which represents sports bars and other commercial establishments which seek access to broadcast sports events, expresses concern with the announced cost of the NFL package, calling it "prohibitive." NLBA notes that various bars have been sued under the Communications and Copyright Acts for unauthorized reception of sports programming and reports that in "almost every instance, bar owners were found guilty of unauthorized reception of sports programming and, in many cases, were held liable and assessed penalties of more than $100,000." NLBA expresses concern that other sports leagues will develop packages similar to the NFL program and urges the Commission to recommend passage of a bill to provide places of public accommodation a compulsory license to exhibit video coverage of games between professional sports teams and to direct the Copyright Royalty Tribunal to establish reasonable fees for such license. 170. Satellite Receivers, Ltd. ("SRL"), a distributor of home satellite equipment and programming, objects to not having been appointed a distributor of the NFL package. SRL suggests that the NFL should set standard qualifications for distributors and accept all who meet them. SRL asserts that it is prepared to conform to any specified requirements. In response, the NFL asserts that it has "developed reasonable, non-exclusive distributor qualifications criteria" and that they have been "applied in a fair and even-handed manner." Moreover, the NFL "remains open to working with any party, including SRL, which is willing to make the investments in marketing and customer service personnel and facilities that are required to promote the product and provide service to subscribers." 171. As a threshold matter, we do not see the NFL package as a sports migration issue. It appears to be a net addition to output and to the choices lawfully available to dish owners and commercial establishments. We have no basis to question the announced price structure of the package, and thus no reason to endorse the proposed new compulsory license for sports bars. With regard to SRL's complaint, the NFL has appointed several non- exclusive distributors for its package and it is clear that dish owners and commercial establishments will have multiple options for subscribing. These factors, along with NFL's stated willingness to explore relationships with other prospective distributors, including SRL, lead us to conclude that the initial SRL complaint raises no public interest issues. D. The Impact of Pay Media on the Availability of Sports Programming 172. With regard to the impact of new media and the expected expansion of channel capacity on sports programming, it is difficult to do more than speculate. To the extent that new media such as DBS attract subscribers who do not have access to cable or choose not to subscribe, access to sports programming will likely increase. Expanded channel capacity will likely have the same effect. More specifically, expanded channel capacity is likely to lead to increased out-of-market pay-per-view services. The NFL plan to offer a "season ticket" program of ten to twelve out-of-market games per week throughout the season to dish owners and sports bars may be an indication of things to come. This package will be distributed via C band satellite, a medium that already offers hundreds of channels. As cable channel capacity expands, it is possible that this (and perhaps other analogous packages yet to be created) will be made available to cable subscribers. Indeed, on a limited scale, ABC has been distributing a few out-of-market college football games each week since 1992 to cable operators. We agree with the NHL that such out-of-market distribution should be construed as a net addition to output and not an example of sports migration. On balance, it is likely to expand and enhance access to sports programming, particularly niche audiences such as fans of the Washington football team who live in Dallas. We received little specific comment regarding the future of pay-per-view sports. Those parties who addressed pay-per-view generally stated that their activities in this area are limited; some also indicated that they have no current plans to institute pay-per-view service. VII. RECOMMENDATIONS AND CONCLUSIONS 173. In this inquiry, we have made an exhaustive examination of trends in the video exhibition of sports programming, focusing on professional football, basketball, hockey, and baseball, and on college football and basketball. We defined sports programming migration as the movement of sports programming from broadcast television to subscription media, and we examined national, regional, and local exhibition trends. By and large, the record established in response to the Further Notice confirms our earlier tentative conclusions. We see no evidence of migration of NFL or college basketball games. At the national level, we see no evidence of migration of NBA or NHL games. Indeed, the NHL seems to be a case of reverse migration at the national level. At the local level, the NBA record shows declines in broadcast coverage in a few markets and the less complete NHL record shows a decline in broadcast coverage in some local markets. We do not see a trend away from local broadcast coverage of NBA and NHL games. 174. The two areas where comments on the Further Notice generated some debate are MLB and college football. MLB recently signed new contracts with ABC and NBC for national broadcast coverage and with ESPN for national cable coverage. The broadcast package contains a smaller number of regular season games and, due to the creation of a new round of divisional play-offs, a larger number of post-season games than earlier contracts called for. Moreover, the regular season coverage will be regionalized, as will the coverage of the divisional play-offs and LCS. We recognize that National and American LCS games will now be broadcast at the same time. Thus, it will no longer be possible for an individual to view every game of those series. On the other hand, the new configuration permits all LCS games to be broadcast in prime time, increasing the potential audience. While this change does not constitute migration, we recognize that it does change the overall availability of LCS games. 175. INTV argued that the MLB/ESPN contract, which calls for national cablecast of fewer than half as many games as the previous contract, should be considered "preclusive," by analogy to the statutory definition of preclusive contracts for college athletic conferences. Although the ESPN contract does provide Wednesday night exclusivity vis-a-vis broadcast coverage, it appears likely that the provision has had little effect on the number of games broadcast on local television stations. Rather, local stations have apparently increased their coverage of games on other days of the week. On balance, then, we consider the ESPN contract an addition to output rather than an example of migration or preclusive contracting. At the local level, there are instances of declining broadcast coverage of MLB games, but they appear to be isolated and not indicative of any overall trend. 176. Although we received a substantial amount of information regarding telecasts of college football games and the contracts governing them, certain ambiguities remain. Our assignment with regard to college football was twofold -- to assess whether games had migrated from broadcast television to cable and to evaluate possible preclusive contracts. The record provides some evidence that, at least in a few major markets, the number of broadcasts by non-network stations has declined. While network broadcast coverage has increased in some of the markets for which we have data, that increase was not enough to offset the non-network decline. While cable coverage increased significantly during the period in question, we were unable to determine that migration of games from broadcast to cable coverage or preclusive contracts caused the non-network decline. 177. With regard to preclusive contracts, our analysis of the typical terms of contracts between college athletic conferences and video programming vendors, suggests that we cannot determine without the sort of factual evidence presented in a full-blown trial whether such contracts violate the antitrust laws. No commenter suggested that these contracts might violate any other statutes. It does seem clear that the college contracts generally do not prohibit local telecasts of local teams' games per se. However, the provisions that limit time periods available for local telecasts and the provisions that lead to many games being chosen for national or regional exhibition only six to twelve days prior to the game date clearly make it more difficult for local stations to contract for games. While it is possible for local stations to sign contingent contracts for carriage of certain local football games, provisions to increase the predictability of network carriage without compromising the benefits of timely selection of network games would certainly make the local stations' task easier. 178. The break-up of the CFA is likely to increase the broadcast coverage of college football, at least at the regional and national levels. However, in view of our concern about the decline in the availability of local college football games on local broadcast stations, we will continue to monitor this area. We therefore urge interested parties to file legitimate complaints with the Commission in the event that current or future college football contracts artificially and unfairly constrain local television stations' ability to televise local teams' games. Complaints should be as detailed and specific as possible. The Commission is committed to pursue such complaints vigorously and promptly. In this regard, should any such complaint indicate that a serious problem exists, we will take whatever further steps may be appropriate. 179. Few commenters explicitly addressed the question of whether additional government action to promote free access to sports programming would be appropriate. Because of the magnitude of sports programming on broadcast television, including the "marquee" events in all sports that we studied, and because our interest in the availability of a diverse menu of programming to the public encompasses both sports and non-sports programming, we have concluded that additional intervention is not warranted. Moreover, we note that because cable and other multichannel media have become widely available and are likely to become even more widely available, access to the vast array of non-broadcast sports programming is not a problem for most households. Most but not all cable sports networks are available on tiers subject to rate regulation. Regulation of cable rates pursuant to the 1992 Cable Act and, in the future, increased competition among multichannel media, provide assurance that rates will be reasonable. These factors mitigate concern regarding the affordability of access to sports programming on subscription media. 180. While it is hard to predict accurately, it appears likely that increased channel capacity on multichannel media will lead to increased availability of sports programming via those media, particularly out-of-market games. The out-of-market games appear conducive to pay-per-view or "pay-per-season" marketing. We recognize that broad and economical access to a variety of sports programming is instrumental to the Commission's goal of ensuring the availability of diverse programming. For that reason, should any significant threat to such access develop, we shall not hesitate to act, consistent with our statutory authority. Although, having fulfilled our statutory mandate, we are closing this docket, we shall remain open to submissions documenting any problems that might arise in the sports programming market. Moreover, we shall convey our findings in this inquiry to the Department of Justice and the Federal Trade Commission, the agencies with primary responsibility for antitrust enforcement. We call their attention particularly to the issue of preclusive college football contracts. VIII. ADMINISTRATIVE MATTERS 181. This Final Report is issued pursuant to authority contained in Section 26 of the Cable Television and Consumer Protection Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 (1992), and Sections 4(i) and 403 of the Communications Act of 1934, as amended, 47 U.S.C. Sections 154(i), 403. 182. IT IS ORDERED that the Secretary shall send copies of this Final Report to the appropriate committees and subcommittees of the United States House of Representatives and the United States Senate, and to the Attorney General and the Chairman of the Federal Trade Commission. 183. IT IS FURTHER ORDERED that this inquiry into sports programming migration is TERMINATED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX Commenters ABC Capital Cities/ABC, Inc. ARC Affiliated Regional Communications, Ltd. Arkansas University of Arkansas Big East Big East Conference and Big East Football Conference Denver University of Denver ESPN ESPN, Inc. Fox Fox Broadcasting Company INTV Association of Independent Television Stations, Inc. MiamiUniversity of Miami MLB Office of the Commissioner of Baseball (Major League Baseball) MLBPAMajor League Baseball Players Association MSG Madison Square Garden Corporation NBA National Basketball Association NBC National Broadcasting Company, Inc. NCAA National Collegiate Athletic Association NCTA National Cable Television Association, Inc. NFL National Football League NHL National Hockey League NLBA National Licensed Beverage Association Pac 10 Pacific-10 Conference Rainbow Rainbow Programming Holdings, Inc. SFU Sports Fans United, Inc. (late-filed) Southland Southland Conference SRL Satellite Receivers, Ltd., dba Programming Center Sun Belt Sun Belt Conference Time Warner Time Warner Entertainment Company, L.P. Tribune Tribune Broadcasting Company TSO Texas Special Olympics Turner Turner Broadcasting System, Inc. UIL University Interscholastic League Reply Commenters ACC Atlantic Coast Conference ARC Affiliated Regional Communications, Ltd. CBS CBS Inc. ESPN ESPN, Inc. INTV Association of Independent Television Stations, Inc. MLB Office of the Commissioner of Baseball (Major League Baseball) NBA National Basketball Association NCTA National Cable Television Association, Inc. NFL National Football League NHL National Hockey League Tribune Tribune Broadcasting Company