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CONTACT: Amy Smorodin
March 5, 2008
(202) 289-8928
No Market Failure in Sports Programming Market
PFF's Ferree Testifies Before U.S. House Telecommunications Subcommittee

WASHINGTON D.C. - Most disputes between programming distributors and sports content providers over carriage agreements are not based on market failure and do not require government oversight or intervention, stated Ken Ferree in testimony presented to the U.S. House Committee on Energy and Commerce Subcommittee on Telecommunications and the Internet. The market for sports programming, he explained, is competitive and carriage terms are best left to private negotiations. Therefore, government should refrain from imposing mandatory arbitration or pricing structures.

Ken Ferree, President of The Progress & Freedom Foundation, stated that government intervention is only appropriate in a programming dispute when one party will benefit from breakdown of negotiations, as was the case in the acquisition of DIRECTV by News Corporation acquisition. Ferree, who presided over the staff review of the acquisition as Chief of the Federal Communications Commission's Media Bureau, explained it was determined that government intervention was needed in that specific case because News Corporation could profit by temporarily withholding regional sports programming networks in order to drive subscribers to DIRECTV. Ferree stated that this instance was unique and there is no rationale for imposing mandatory arbitration in instances where neither side will benefit if carriage terms are not successfully negotiated.

Because of lack of clear market failure, Ferree concluded that the government should refrain from acting on current pleas to force basic tier carriage of sports programming. Both content providers and content distributors, he explains, are under remarkable pressure to negotiate. "Although neither party may be entirely satisfied with the result, that is the nature of free market negotiations," stated Ferree. "Government intervention to prohibit or limit the use of special programming tiers can only serve to mute market signals and drive the process to a less efficient outcome."

Alternatively, the government should also refrain from imposing an a la carte pricing structure at the wholesale or retail level. "Bundling can lower transaction costs, allow programmers to achieve economies of scale, enhance consumer convenience and, perhaps most importantly, allow for appropriate pricing differentiation," Ferree stated. "In effect, bundling allows each of us to enjoy our favorite programming whether or not it can alone attract large audiences."

Ferree's written testimony for the U.S. House Committee on Energy and Commerce Subcommittee on Telecommunications and the Internet hearing "Competition in the Sports Programming Marketplace" is available on the PFF website.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



The Progress & Freedom Foundation