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FCC-14-73A3

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STATEMENT OF

COMMISSIONER MICHAEL O’RIELLY

CONCURRING IN PART, DISSENTING IN PART

Re:

DIRECTV Sports Net Pittsburgh, LLC, Petitioner v. Armstrong Utilities, Inc., Respondent, File

No. CSR08480-P.

In this item, the Commission is faced with the task of reviewing the implementation of a complex

merger condition. At issue is a dispute resolution condition originally imposed in 2003, when News

Corporation acquired effective control over DIRECTV’s parent company, Hughes Electronics

Corporation. The condition required arbitration if negotiations between a DIRECTV-owned regional

sports network and a multichannel video programming distributor (MVPD) failed to produce mutually

agreed upon prices and terms. Liberty Media Corporation agreed to extend this condition for six years

when it acquired effective control of DIRECTV from News Corporation in 2008, and the condition

continued to apply after Liberty Media spun off DIRECTV in 2009.

As required by this condition, a commercial arbitrator, agreed to by both DIRECTV and

Armstrong Utilities, Inc., had to decide which entity’s offer most closely represented fair market value for

the programming carriage rights of DIRECTV Sports Net Pittsburgh (now marketed as Root Sports

Pittsburgh). The arbitrator, using so-called “baseball-style” or final offer arbitration, selected

Armstrong’s proposal. In an Order on Review, the Media Bureau affirmed the arbitrator’s decision. In

the Application for Review before us, DIRECTV Sports Net Pittsburgh asks the Commission to review

just two of the twelve separate provisions of the parties’ offers: the rates and the renewal rate increase.

I was not at the Commission when this dispute resolution condition was adopted, and I may not

have supported it had I been. Generally, I have serious reservations about the Commission setting “fair”

rates for video programming. Therefore, I am concerned that the Commission established an arbitration

mechanism that requires the Commission to resolve a dispute by selecting the offer that is closest to fair

market value. I believe that marketplace negotiations—or some other private sector arrangement agreed

to by the negotiating entities—is the superior mechanism for determining fair market value for such

content.

In his dissent, Commissioner Pai makes a compelling case that the Commission did not properly

effectuate its role under this condition. Specifically, he outlines that the Commission has the obligation to

independently estimate the fair market value of the programming carriage rights at issue to determine

which offer was closest to that number, and that was not sufficiently done in this instance. I associate

myself with his concerns over the Commission’s methodology, and I dissent on this aspect of the item.

In the end, I am willing to let the Media Bureau’s decision stand for the following reasons. First,

DIRECTV failed to challenge the other portions of the arbitrator’s decision and did not, as far as I am

aware, provide an explanation as to why the two provisions it challenged would ultimately tip the scales

in their favor. Second, Liberty Media Corporation agreed to this process, however flawed, as part of its

DIRECTV purchase. And finally, DIRECTV knew of this condition when it was spun-off. Whether

agreeing to this condition ultimately was a wise decision, is something for the company’s leadership to

evaluate in hindsight.

The item maintains that even if DIRECTV Sports Net Pittsburgh had convinced the Commission

to reverse the Media Bureau’s decision on the two challenged portions, it still would not outweigh the

unchallenged portions of the arbitrator’s decision. If that is accurate, and it appears to be based on the

Bureau’s determination notwithstanding the questionable approach, then this should conclude the case.

As such, I will concur with the overall decision of the Bureau and hope the Commission does not find

itself in similar circumstances in the future.

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