In re General Motors Corp.

• Decision Date: 14 January 2004
• Docket Number: MB Docket 03-124
• Court: Federal Communications Commission Decisions
• Parties: In the Matter of General Motors Corporation and Hughes Electronics Corporation, Transferors And The News Corporation Limited, Transferee, For Authority to Transfer Control

In the Matter of General Motors Corporation and Hughes Electronics Corporation, Transferors And The News Corporation Limited, Transferee, For Authority to Transfer Control

MB Docket No. 03-124

Federal Communications Commission

January 14, 2004

Adopted: December 19, 2003

Before the Federal Communications Commission Washington, D.C. 20554

MEMORANDUM OPINION AND ORDER

By the Commission: Chairman Powell, Commissioners Abernathy and Martin issuing separate statements; Commissioners Copps and Adelstein dissenting and issuing separate statements.

TABLE OF CONTENTS

Para. No.

I. INTRODUCTION ............. 1

II. DESCRIPTION OF THE PARTIES ................6

A. The News Corporation Limited .................6

B. General Motors Corporation and Hughes Electronics Corporation .........8

C. The Proposed Transaction ..............9

III. STANDARD OF REVIEW AND PUBLIC INTEREST FRAMEWORK ..........15

IV. COMPLIANCE WITH COMMUNICATIONS ACT AND COMMISSION RULES

AND POLICIES ................... 18

A. Licensing Qualifications ................. 18

B. Foreign Ownership ................ 27

C. National Security, Law Enforcement, Foreign Policy and Trade Policy Concerns ....... 35

V. INTRODUCTION TO THE VIDEO PROGRMAMING AND MVPD MARKETS ..............39

A. Background ............. 39

B. Applicable Regulatory Framework .............. 41

1. Program Access Requirements ................41

2. Program Carriage Rules ............... 45

3. Must-Carry and Retransmission Consent .............46

C. Relevant Markets ............... 49

1. Product Markets ............... 51

a. MVPD Services ............ 52

b. Video Programming .................54

2. Relevant Geographic Markets ................. 62

a. MVPD Services ...............62

b. Video Programming ................ 63

VI. ANALYSIS OF POTENTIAL HARMS IN THE RELEVANT MARKETS ..............68

A. Introduction ....................68

B. Potential Horizontal Harms ................. 72

C. Potential Vertical Harms ................ 76

1. Background ....................76

2. Role of Corporate Governance .................. 89

3. Discrimination Against Unaffiliated Programming ........... 101

(i) Positions of the Parties ...............101

(ii) Discussion and Condition ............107

4. Discrimination Against Unaffiliated MVPDs ................109

a. Access to National and Non-Sports Regional Cable

Programming Networks .................... 109

(i) Position of Parties ................... 109

(ii) Discussion and Conditions .............. 124

b. Access to Regional Sports Cable Programming Networks ............. 133

(i) Background ............... 133

(ii) Positions of the Parties .................. 135

(iii) Discussion .................... 147

(iv) Conditions .......... 163

c. Access to Broadcast Television Station Signals ................ 180

(i) Background ..............180

(ii) Positions of the Parties ............ 182

(iii) Discussion .............201

(iv) Conditions ...............212

d. Access to Programming-Related Technologies ............ 227

(i) Electronic Program Guides/Interactive Program Guides ............ 227

(ii) Interactive Television ............. 242

(iii) Conditional Access Technology and Set-top Boxes. . ................. 247

e. Access to Fixed Satellite Services ...............251

VII. OTHER POTENTIAL PUBLIC INTEREST HARMS ................. 259

A. Impact of the Transaction on Diversity ................... 259

1. Background .................. 259

2. Program Diversity .................... 260

3. Viewpoint Diversity ................. 262

B. Effect on Network-Affiliate Relationships ("Bypass" Issue) ............... 274

C. Collusion with Cable MSOs ................. 276

D. Exclusive Arrangements with Unaffiliated Programmers ..............289

E. Applicants' Conduct in Foreign Jurisdictions ...............294

F. Competitive Harms in Latin America and Impact on U.S. Consumers and Programmers.301

G. DirecTV and Fox Network Service in Alaska and Hawaii ............ 304

H. Exclusion of Non-Network Affiliated Broadcasters from the Benefits of Local-Into

Local Carriage ..............307

I. Lack of Final Media Ownership Rules ................ 310

J. Protection of General Motors Class GMH Stockholders .............313

VIII. ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS ................................................... 315

A. Analytical Framework ...............316

B. Claimed Benefits ........... 319

1. Improvements in DirecTV's Service Offerings Resulting from News

Corp's Innovative Management ................ 320

2. Increased Offering of Local-into-Local, HDTV, and Broadband Services ........... 329

3. Increased Operating Efficiencies ............. 335

4. Economies of Scope and Scale ...............339

5. Improved Customer Satisfaction and Reduced Churn ............ 345

6. Improved Capital Structure ................... 349

7. Reduction in Double Marginalization .............351

8. Increased Program and Employment Diversity ............. 352

IX. BALANCING POTENTIAL PUBLIC INTEREST HARMS AND BENEFITS ......... 358

X. CONCLUSION .....................371

XI. ORDERING CLAUSES ........... 372 APPENDICES

Appendix A – List of Commenters

Appendix B – Modifications to Rules for Arbitration Involving Regional Sports Networks

Appendix C – Modifications to Rules for Arbitration Involving Retransmission Consent

Appendix D – Technical Appendix

Appendix E – Hughes Electronics Corporation – Amended and Restated By-Laws

Appendix F – Conditions

Appendix G – Licenses and Authorizations to Be Transferred

I. INTRODUCTION

1. In this Order, we consider the application ("Application")^[1] of General Motors Corporation ("GM"), Hughes Electronics Corporation ("Hughes"), and the News Corporation Limited ("News Corp.") (collectively, the "Applicants") for consent to transfer control of various Commission licenses and authorizations, including direct broadcast satellite ("DBS")^[2] and fixed satellite space station, earth station, and terrestrial wireless authorizations held by Hughes and its wholly- or majority-owned subsidiaries to News Corp. The proposed transaction involves the split-off of Hughes from GM, wherein Hughes will become a separate and independent company, followed by a series of transactions through which News Corp., through its majority-held subsidiary, Fox Entertainment Group ("FEG"), will acquire a 34% interest in Hughes. The remaining 66% interest in Hughes will be held by three GM employee benefit trusts (managed by an independent trustee), which combined will hold an approximately 20% interest in Hughes, and by the general public, which will hold an approximately 46% interest in Hughes.

2. If approved, the proposed transaction will result in News Corp. holding the single largest block of shares in Hughes, thus providing News Corp. with a de facto controlling interest over Hughes and its subsidiaries, including DirecTV Holdings, LLC ("DirecTV"), a wholly-owned subsidiary of Hughes, which provides DBS service in the United States, as well as Hughes Network Systems, Inc. ("HNS"), a facilities-based provider of very small aperture terminal ("VSAT") network systems, and PanAmSat Corporation ("PanAmSat"), a global facilities-based provider of geostationary-satellite orbit fixed satellite services ("FSS"). As described in the Application, if the proposed transaction is consummated, K. Rupert Murdoch, chairman and chief executive officer ("CEO") of News Corp., will become chairman of Hughes, and Chase Carey, News Corp.'s former co-chief operating officer, will become president and chief executive officer of Hughes. Hughes' board of directors will consist of 11 directors, six of whom will be independent directors.

3. Among News Corp.'s video programming assets are 35 owned and operated ("O&O") full-power television broadcast stations, a television broadcast network, ten national cable programming networks, and 22 regional cable programming networks. With 11.4 million subscribers – 13% of all multichannel video programming distribution ("MVPD") households – DirecTV is second only to Comcast Corporation in its share of the MVPD market. With its national footprint, DirecTV competes with every single MVPD in the country, in markets of all sizes.

4. Currently, News Corp. supplies programming to DirecTV and other MVPDs, and DirecTV is a buyer of programming content from News Corp. and other programming suppliers. By combining News Corp.'s programming assets with DirecTV's national distribution platform, the proposed transaction creates a vertically integrated content/distribution platform. It thereby changes the nature of News Corp.'s relationship with all other MVPDs from that of solely a programming supplier to that of both a supplier of crucial inputs and a direct competitor in the end user MVPD market. As discussed more fully below, our analysis of the principal allegations of competitive harm in the record demonstrates that this vertical integration has the potential to increase the incentive and ability of News Corp. to engage in temporary foreclosure bargaining strategies during carriage negotiations with competing MVPDs for two types of "must have" video programming products – broadcast television station signals and regional cable programming sports networks -- in order to secure higher prices for its programming.^[3] Although News Corp., like other broadcast networks, engages or attempts to engage in this sort of behavior today ownership of a competing MVPD platform with a national footprint means that News Corp. stands to gain from any subscriber losses the affected MVPD suffers during the period of foreclosure when those subscribers move over to its competing MVPD platform to access the desired programming.^[4] The ability to gain revenues...