No Dice: FCC Denies DirecTV RSN’s Request for Review in Armstrong Case

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Could this long-running dispute finally be over? In 2011, the FCC Media Bureau denied DirecTV Sports Net Pittsburgh ’s petition to review and reverse an arbitrator’s decision that went in Armstrong Cable ’s favor in the spat over the fair market value of the RSN. This week, the full Commission released an opinion and order denying DirecTV’s request for further review. It wasn’t unanimous, with Republican commissioner Ajit Pai dissenting and GOP colleague Mike O’Rielly concurring in part and dissenting in part. The FCC found that Armstrong’s offer for the rate and rate renewal increase for the net, now Root Sports Pittsburgh, most closely approximated fair market value. In challenging the decision, DirecTV said no one ever defined fair market value. The dispute dates back to the transfer of DirecTV to Liberty Media from News Corp in ’08. One of the conditions adopted in approval of the deal was Liberty’s offer to abide by the same arbitration conditions with respect to RSNs that the FCC adopted in approving News Corp’s acquisition of controlling interest in DirecTV in 2004. DirecTV was still held to those conditions when it was spun out from Liberty. Under those conditions, when negotiations fail to produce mutually acceptable terms for a Liberty RSN, the MVPD may choose to submit the dispute to commercial arbitration, with the arbitrator reviewing final offers from each party. Armstrong filed for arbitration in 2010, with the arbitrator finding for the operator in March 2011. The following month DirecTV filed a petition for review, arguing that the arbitrator failed to answer what is fair market value. The Media Bureau upheld the decision in Aug ’11. Now, the full Commission comes in and affirms the Media Bureau decision, saying that DirecTV’s final offer requires Armstrong to “pay similar, and in most cases higher rates than MVPDS that are substantially smaller than Armstrong in terms of subscribers or revenue or both.” In his dissent, Pai compared this whole saga to an episode of the game show “The Price is Right.” The problem, according to the commish, is that no one can play the game because the winner is supposed to be whoever guesses closest to the actual retail price without going over. The arbitrator, Media Bureau and FCC “never attempt to estimate the fair market value,” he complained. Pai believes it unlikely that Armstrong’s offer was closer to fair market value than DirecTV’s, but his main beef is the “flawed methodology used to resolve this case.” His preference: remand it back to the Bureau, have it estimate the fair market value of Armstrong’s carriage and calculate which party’s offer was closest. Drew Carey not necessary… O’Rielly said he is willing to let the Media Bureau decision stand because DirecTV only challenged portions of the arbitrator’s decision and did not explain why the 2 provisions it did challenge (rate and renewal rate) would tip the scales in its favor (this same point was made repeatedly in the FCC order). O’Reilly also said while he doesn’t like the arbitration condition as a whole, preferring the private market to set fair value, he is willing to let it stand because Liberty agreed to this process (and DirecTV knew of the condition when it was spun off from Liberty). All of this is more than just history, with arbitration a hot topic in the pending Comcast-Time Warner Cable merger. ACA has complained that the arbitration condition to resolve program access disputes in the 2011 Comcast- NBCU transaction is inadequate because it’s too expensive for his members and the manner of the conditions was poorly articulated.

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