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The Honorable Ajit Pai 
Chairman 
Federal Communications Commission 
445 12th Street, SW 
Washington, DC 20554 
Dear Mr. Pai, 
WASHINGTON, DC 20510-6250 
February 6, 2017 
I write to provide comment on the proposed Federal Communications Commission 
(FCC) rule on "Promoting the Availability of Diverse and Independent Sources of Video 
Programming" released on September 29, 2016. 1 
Millions of Americans rely on their cable, satellite or telecommunications provider to 
watch entertainment, news and other programming. Given the importance of this industry, the 
Subcommittee undertook an investigation into potential anticompetitive behavior among 
distributors and networks. After reviewing confidential documents from many of the largest 
cable and satellite providers and conducting dozens of interviews with television distributors and 
networks alike, I found that unconditional most favored nation (MFN) clauses and overly 
restrictive alternative distribution method (ADM) clauses may be limiting the number of choices 
that consumers have for viewing and purchasing content. 
If adopted, the FCC's proposed rule will prohibit certain types ofMFN and ADM 
contract provisions as a means of removing "marketplace obstacles that may hinder independent 
programmers from reaching consumers."2 Based on the Subcommittee's investigation, I believe 
that by limiting both unconditional MFN clauses and overly restrictive ADM clauses, the FCC's 
rule will succeed in removing these obstacles and facilitate competition in an industry 
increasingly dominated by only a few large companies. 
I. Background 
Cable, satelli te and telecommunication television providers are collectively known as 
multichannel video programming distributors (MVPDs), and range in size from large companies 
such as Com cast and DirecTV, which have millions of subscribers, to local cable operators that 
may only have several thousand. Additionally, a growing number of Americans consume 
1 Federal Communications Commission, Proposed Rule, Promoting the Availability of 
Diverse and Independent Sources of Video Programming (September 29, 20 16) (FCC 16-1 29). 
2 Federal Communications Commission, Proposed Rule, Promoting the Availability of 
Diverse and Independent Sources of Video Programming (September 29, 2016) (FCC 16-129). 
The Honorable Ajit Pai 
February 6, 2017 
Page 2 
content that is distributed online, known as Over-the-Top (OTT) content, by online video 
distributors (OVDs). MVPDs do not generally produce the content that television viewers 
actually watch. Rather, MVPDs are the pipeline to viewers for content produced by separate 
companies. For example, movie and television studios hire producers, writers, and actors, 
among others, to develop programming.3 Programming is protected by copyright, and content 
owners and producers sell the rights to use their content in exchange for financial compensation, 
typically referred to as a licensing fee or royalty .4 
In 2012, there were seven companies that accounted for roughly 95% of all television 
viewing hours in the United States. 5 In addition to owning studios that develop content, all of 
these companies also own broadcast and cable networks that purchase the content. Each 
programming company frequently provides MVPDs with multiple networks. For instance, the 
Walt Disney Company (Disney) provides content from the ABC broadcast network, the ESPN 
sports network, and the Disney Channel entertainment network, among many others. Relatively 
rarer are "independent networks," which are not owned by or affiliated with a major broadcaster, 
MVPD, or media conglomerate company. 
After licensing content ti·om a variety of content creators, programmers aggregate the 
content into networks. Cable and broadcast network owners negotiate with distributors, 
including cable, satellite, and other types of distributors, regarding the distribution rights for the 
networks. MVPDs develop packages witl1 multiple channels by negotiating with companies for 
carriage of their networks. When these negotiations are successful, the MVPD and the 
programmer agree to a multi-year television programming contract (also known as a carriage, 
affiliation, or retransmission agreement)6 that outlines how much the MVPD will pay the 
network in order to carry the programming for each of the MVPDs subscribers (a «per subscriber 
rate" or "net effective rate").7 Since each MVPD and programmer negotiate the terms of these 
contracts separately, the contracts include non-disclosure provisions and are considered 
3 Government Accountability Office, Video Marketplace, Competition is Evolving and 
Government Reporting Should Be Reevaluated (June 2013) (GA0-13-576) (p. 2). 
4 Government Accountability Office, Statutory Copyright Licensing, Implications of a 
Phaseout on Access to Television Programming and Consumer Prices are Unclear (November 
2011) (GA0-12-75) (p. 4). 
5 The seven companies were: CBS, Discovery Communications, Disney, NBC Universal, 
News Corporation, Time Warner, and Viacom. Government Accountability Office, Video 
Marketplace, Competition is Evolving and Government Reporting Should Be Reevaluated (June 
2013) (GA0-13-576) (p. 6-7). 
6 Retransmission agreements specifically refer to contracts for the carriage of local 
television broadcast stations, rather than cable networks. 
7 In some cases, particularly with respect to new untested networks, MVPDs may not pay 
to carry the network, or the programmer may pay the MVPD to CatT)' the network so that the 
programmer can build an audience and generate advertising revenue. 
TI1e Honorable Ajit Pai 
F ebmary 6, 2017 
Page 3 
confidential and extremely sensitive. Through its investigation, the Subcommittee had rare 
. h 8 access to rev1ew t ese agreements. 
II. Growth in Online Content Availability 
Over the past several years, companies have explored making video content, including 
programming traditionally provided via MVPD subscription services, available over the internet. 
OVDs vary in terms of their business models, including whether they provide access to content 
that has previously aired on networks, access to original content, access to real-time content that 
is offered on traditional television networks, or some combination of this programming. 
While recent estimates of households subscribing to video services from MVPDs range 
as high as 89%, the growth in OTT content has posed a potential challenge to MVPD 
dominance.9 To date, there has been an increase in the number of households that have stopped 
subscribing to MVPD-provided video services (referred to as "cord-cutters"), households that 
reduced their cable packages ("cord-shavers"), and households that have never subscribed to 
such services ("cord-nevers.") 10 Industry stakeholders differ regarding the extent to which 
consumers have replaced MVPD-provided video services with programming provided over the 
8 These agreements and other confidential MVPD and programmer documents provide 
the basis for findings and examples. Out of respect for the sensitivity of the infonnation 
provided, these documents are identified as "Internal PSI documents." 
9 Federal Communications Commission, In the Matter of Annual Assessment of the Status 
of Competition in the Market for the Delivery of Video Programming, Sixteenth Report (April 2, 
2015) (para. 135); "Although MVPDs have traditionally considered other MVPDs their foremost 
rivals, MVPDs increasingly see themselves competing with OVDs for viewers, subscription 
revenue, and advertising revenue." Federal Communications Commission, In the Matter of 
Annual Assessment ofthe Status of Competition in the Market for the Delivery of Video 
Programming, Seventeenth Report (May 6, 2016) (para. 61); 
10 In 2015, the Pew Research Center reported that 15% of Americans surveyed had 
canceled paid cable or satellite service, and that many of these cord cutters stated that 
affordability, as well as the availability of content from the internet and other sources, were 
factors in their decision to cancel paid television service. Cord cutters, when combined with the 
percent of Americans surveyed who have never subscribed to cable or satellite service (9%), 
amount to 24% of Americans surveyed that do not receive cable or satellite service at home. Pew 
Research Center, Home Broadband 2015 (December 21, 2015) (online at: 
http://www.pewinternet.org/2015/12/21/2015/Home-Broadband-2015/PDF) (p. 3, 7); See also, 
Federal Communications Commission, In the Matter of Annual Assessment of the Status of 
Compel ilion in the Marketfor the Delivery of Video Programming, Seventeenth Report (May 16, 
2016) (para. 61). 
TI1e Honorable Ajit Pai 
February 6, 2017 
Page4 
internet. 1 1 Nonetheless, MVPDs have taken steps to address the competitive pressures 
introduced from OVDs, including providing their subscribers with access to online content 
through TV Everywhere platfonns, and including contractual provisions that limit distribution of 
content over the internet. 12 To this end, MVPDs and programmers negotiate limits on the 
distribution of programming via the internet through ADM provisions. 
III. Use of Most-Favored Nation Provisions 
When networks and MVPDs negotiate the tem1s of program carriage, they typically 
include MFN provisions in their agreements. MFN provisions are used in a variety of industries, 
and arc used by one pmty to promise that it will give the other party at least as favorable 
contractual terms as it gives any other counterparty. 13 For example, if a programmer and an 
MVPD sign an agreement that includes an MFN regarding the price of programming, then the 
programmer is restricted from offering another MVPD a lower price for the same programming. 
If it does so, it must offer the first MVPD the lower price as welL 
MFN provisions vary with respect to their scope and the conditions under which they 
apply. For exan1ple, MFN provisions can be size-based, non-size-based, or by-name. Non-sized 
based MFNs are also known as universal MFNs because they prevent the programmer from 
offering any other distributor a better rate, regardless of the distributor's size. A programmer 
who signs an MFN with one MVPD must offer that MVPD the best rate it offers any other 
MVPD, regardless of any size discrepancies between MVPDs. In contrast, sized-based MFNs 
refer to restrictions that are determined by a minimum or a maximum number of subscribers. 
For example, a sized-based MFN could require that a programmer offer the MVPD the same rate 
it offers any other provider with an equal or fewer numbers of subscribers. On the other hand, a 
by-name provision would include or exclude the names of companies to which the MFN applies. 
An example of a by-name provision would be an MFN between a provider and an MVPD that 
specifically allowed one MVPD to license the provider's programming at a lower price than it 
was provided to the MVPD. 14 
11 Federal Communications Commission, In the Malter of Annual Assessment of the 
Status of Competition in the Market for the Delivery o.fVideo Programming, Sixteenth Report 
(Apri12, 2015) (para. 215). 
12 TV Everywhere platforms are an additional service option provided with a traditional 
MVPD subscription. Using these services, MVPD subscribers can access certain movies and 
television shows online via a variety of devices including personal computers, mobile devices, 
and televisions. Federal Communications Commission, In the Matter of Annual Assessment of 
the Status of Competition in the Market for the Delive1y of Video Programming, Sixteenth 
Report (Apri12, 2015) (fn. 22). 
13 Johnathan Baker and Judith Chevalier, The Competitive Consequences of Most­
Favored-Nation Provisions, Antitrust, Vol27, No.2 (Spring 2013). 
14 Internal PSI document. 
The Honorable Ajit Pai 
February 6, 2017 
Page 5 
An MFN provision can also specifY which economic and non-economic terms in the 
agreement receive the MFN protection. For example, an economic MFN could apply to the per 
subscriber rate the MVPD pays the programmer, or to other economic provisions, such as the 
amount of volume discounts offered to the MVPD (agreements may offer a lower per subscriber 
rate as the number of subscribers served by the MVPD increases). 
Non-economic terms of an MFN provision may cover "any material non-economic term, 
provision, covenant or consideration, that is more favorable to such third party than [to the 
signatmy MVPD] .... ,"15 though some contracts specifically outline which sections fall under the 
MFN provision. For example, a contract may indicate an MFN on terms related to packaging, 
advertising time, content, technology, systems, auditing rights, or distribution rights. 16 Of 
particular interest are the technology or ADM MFNs that specifically relate to the distribution of 
content over the intemet. These MFNs control how content is distributed and to ensure that 
programmers do not distribute content through a third party unless the provider also has the same 
terms fOr distribution. Specific terms may include the amount of content, the file format, refresh 
rates, advertising rifhts, the number of subscriber profiles allowed to view content, and fast 
forward disabling. 1 
Finally, MFNs can be conditional or unconditional with respect to what steps the MVPD 
must take in order to benefit from an MFN offer. Conditional MFNs require that in order to 
receive the benefit of a lower rate or better term offered to a competitor, the MVPD must also 
accept any conditions tied to the offer of a better rate or term. For example, if a programmer 
offered another MVPD a reduced per subscriber rate conditioned on the programmer's network 
being offered on a better tier, or receiving some other material benefit, then the protected MVPD 
would have to match that term in order to receive the benefit of the reduced rate. On the other 
hand, an unconditional MFN does not require the protected MVPD to match any improved terms 
in order to receive the reduced rate offered to competitors. 
A. MFNs Can Hinder Competition in Markets 
Researchers and policymakers have noted that MFNs can provide benefits for markets, 
but have cautioned that these benefits should be weighed against the ways in which MFNs can 
hinder competition in markets. 18 With respect to market benefits, researchers have noted that 
MFNs may: 1) help address negotiating problems where one party benefits tl·om delaying the 
transaction in order to receive an increased price; 2) lower prices in markets where a supplier can 
15 Internal PSI document. 
16 Internal PSI document. 
17 Internal PSI document. 
18 MFNs may harm competition by facilitating coordination, decreasing incentives to 
bargain, raising rival company entrant costs, and increasing seller bargaining power. Jonathan 
Baker, American University Washington College of Law, Presentation: Competitive Harm from 
MFNs: Economic Theories (Sept. 10, 2012). 
The Honorable Ajit Pai 
February 6, 2017 
Page 6 
keep the prices they charge different buyers secret; and 3) provide brand protection by ensuring 
that programmers do not offer the same programming to another distributor at a drastically 
reduced rate. 19 Similarly, MVPDs and programmers have noted the benefits ofMFNs in 
addressing negotiation problems and facilitating entry for some finns. For example, one large 
programmer noted that MFNs can give a level of comfort to distributors that are the first to 
pursue a new distribution outlet, technology, or method of doing business.20 Another 
programmer stated that MFNs were initially used to provide some protection to MVPDs that 
were carrying new networks?1 Additionally, MVPDs state that it can be difficult to detennine 
the cost and value of new independent networks and how many subscribers will be gained based 
on concepts and business plans of unproven independent networks.22 Thus, an MFN can protect 
MVPDs who take a risk on carrying the network by ensuring that competitors do not obtain more 
favorable terms once the network is launched. 
Despite these supposed benefits, researchers and policymakers contend that MFNs can 
harm competition by: 1) excluding competitors and 2) facilitating collusion and reducing price 
competition. The result of such anti-competitive outcomes can be limited competition, increased 
prices, and limited innovation. While economic analyses and case law have supported the 
proposition that horizontal agreements between competitors can have anticompetitive effects; 
analyses of vertical agreements (such as MFNs between a buyer and a supplier) can be more 
complicated.23 As such, it is important to understand the particular effect that MFNs may have 
on the market in the MVPD industry. 
1. MVPDs Have Used MFNs and Affiliation Agreements to Exclude Potential Rivals in 
the Past 
19 Smith Johnathan Baker and Judith Chevalier, The Competitive Consequences ofMost­
Favored~Nation Provisions, Antitrust, Vol27, No.2 (Spring 2013); Bill Toth, How Parallel 
Most Favored Nation Clauses in Television Industry Exclude Competitors and Stifle Innovation, 
The Columbia Science and Technology Law Review (Fall2013); Stephen Smith, When Most 
Favored is Di.~favored: A Counselor's Guide to MFNs, Antitrust, Vol27, No.2 (Spring 2013). 
20 Permanent Subcvmmittee on Investigations, Interview of Disney Programming 
Distribution official (Oct. 20, 2015) (p. 9). 
21 Permanent Subcommittee on Investigations, Interview of Company Programming 
Distribution official (Oct. 15, 2015) (p. 3). The Subcommittee conducted dozens of interviews 
over the course of its investigation. Because of the sensitivity ofMFNs in carriage negotiations, 
several companies requested that their participation in the investigation be kept confidential. 
22 Government Accountability Office, Media Programming, Factors Influencing the 
Availability of Independent Programming in Televison and Programming Decisions in Radio 
(March 2010) (GA0-10-369) (p. 20). 
23 Fiona Scott-Morton, Contracts that Reference Rivals, Department of Justice 
Presentation at Georgetown University Law Center Antitrust Seminar (AprilS, 2012). 
The Honorable Ajit Pai 
February 6, 2017 
Page 7 
In the past, the Department of Justice (DOJ) has taken action to prevent cable companies 
from using MFNs in a manner that would exclude new entrants to the market. For example, in 
1993, DOJ filed a complaint alleging that cable operators had used MFN clauses in their 
agreements with programmers to restrict market entry by new satellite competitors?4 In this 
case, subsidiaries of the seven largest cable companies at the time, as well as other cable 
companies and a subsidiary of General Electric formed a joint venture partnership called 
Primestar to launch their own satellite service. DOJ alleged that this partnership was formed to 
raise barriers to entry by other satellite providers by "restraining the availability of partner­
controlled or owned programming to possible entrants, discouraging other, non-defendant 
programmers from making their programming available to other [satellite] entrants ... , and 
facilitating a coordinated retaliatory response by the ... defendants to [satellite] entry by others." 
The defendant cable companies, in addition to being major cable service providers, also held 
companies that supplied popular cable programming, such as HBO, Showtime, Cinemax, MTV, 
BET, Nickelodeon, El Entertaimnent, CNN, The Discovery Cham1el, and Lifetime. The 
partnership agreement between the joint venture companies included an MFN clause that 
required partner programmers to offer programming to Primestar at terms no less favorable than 
provided to other distributors, and to provide Prhnestar at least three years in which to accept the 
programming. Under the MFN, any partner in the joint venture that supplied programming to a 
new satellite provider would have had to notify all the other partners in the joint venture (thereby 
enabling a retaliatory response), as well as offer the same terms to Primestar. DOJ noted that 
due to the size of the cable companies involved in the joint venture (collectively controlling 
access to a majority of cable households), any cable programmer who provided programming to 
a satellite competitor "would do so only at the risk of coordinated retaliation from the [cable 
operator defendants]." 
In 1994, DOJ and the defendants agreed to a consent decree that prevented the defendants 
from enforcing provisions of the partnership agreements that affected the availability or price of 
programming to any provider of subscription television, or from retaliating against any party that 
supplied programming to other providers of subscription television service. In response to 
concerns that cable companies would restrict satellite entrants' ability to access programming 
from cable-affiliated networks, FCC passed program access rules.25 
2. MFNs Have Become Ubiquitous in MVPD Carriage Agreements, and Are Used By 
Large Programmers and Distributors 
24 United States v. Primestar Partners, L.P., 1994 U.S. Dist. LEXIS 14978 (S.D.N.Y. 
Apr. 4, 1994). 
25 Federal Communications Commission, Commission Affirms Program Access Rule on 
Exclusive Contracts.for Satellite Programming (Docket 92-265) (Dec. 15, 1994). 
The Honorable Ajit Pai 
February 6, 2017 
Page 8 
Some researchers and industry representatives have found that MFNs can raise 
anticompetitive concerns when they are used by dominant firms, or they are widely used 
throughout an industry?6 Both of these scenarios apply to the cable industry. 
Today, the cable industry is both concentrated with respect to distribution, and with 
respect to development ofprogrammingY In interviews with Subcommittee staff, 
representatives for programmers and MVPDs noted that MFN agreements have become 
ubiquitous in carriage agreements, particularly in agreements with large MVPDs?8 
Subcommittee staff confirmed this through reviews of non-public documents provided by 
MVPDs.29 For example, two of the top MVPDs in terms of number of households served noted 
that most of their agreements with programmers include MFNs.30 Specifically, one MVPD 
disclosed that 85% of its agreements contain one or more MFN provisions. The other MVPD 
identified MFN provisions in its agreements with at least 162 networks.31 Most of these 
agreements included economic and non-economic provisions, including MFNs on the rate paid 
for the network. Based on the subcommittee's review of documents, MFNs were included in 
agreements with large programming groups, as well as smaller independent programmers; 
however, the ability to obtain MFNs may be dependent on the leverage of the MVPD. For 
example, representatives of smaller MVPDs told the Subcommittee that they are usually unable 
26 Johnathan Baker and Judith Chevalier, The Competitive Consequences of Most­
Favored-Nation Provisions, Antitrust, Vol27, No.2 (Spring 2013); Bill Toth, How Parallel 
Most Favored Nation Clauses in Television Indusfly Exclude Competitors and stifle Innovation, 
The Columbia Science and Technology Law Review (Fall2013); Stephen Smith, When Most 
Favored is Disfavored: A Counselor's Guide to MFNs, Antitrust, Vol27, No.2 (Spring 2013). 
27 FCC estimated that approximately 38 percent ofU .S. homes have access to at least 
four MVPDs. In its most recent annual report on competition, the FCC identified 94 national 
networks affiliated with the top six cable MVPDs (and 44 HD networks). In particular, Comcast 
had ownership interests in 52 national networks (24 in HD), Time Warner Cable had ownership 
interests in four national networks (two in HD), Cox had ownership interests in six national 
networks (three in l-ID), Bright House had ownership interests in 26 national networks (12 in 
HD) and DIRECTV had affiliation with six national networks (three in HD). Federal 
Communications Commission, "In the Matter of Annual Assessment of the Status of 
Competition in the Market for the Delivery of Video Programming," Seventeenth Report (May 
6, 2016). 
28 Permanent Subcommittee on Investigations, Interviews of Officials from Multiple 
Programming Companies (Sept. 28, 2015; Oct. 8, 2015; Oct. 22, 2015). 
29 These documents included agreements and contracts that are rarely seen by the public 
due to their se11sitive nature. 
30 Internal PSI Documents. 
31 Internal PSI Documents. The documents provided to the Subcommittee were partially 
redacted, so it is possible there are more agreements that contain MFN provisions. 
The Honorable Ajit Pai 
February 6, 2017 
Page 9 
to secure MFNs in their agreements with programmers.32 Additionally, at least one programmer 
was also subject to tmconditional MFNs in which the protected MVPD could receive the benefit 
of a reduced rate or better contract term without having to match any concessions that its 
competitors made in order to gain the more beneficial term. 33 Finally, some MFNs apply to 
MFN provisions themselves, meaning that if another MVPD receives a more beneficial MFN 
from a programmer, then the programmer must offer the better MFN to the protected MVPD. 
3. MFNs and Affiliation Agreements May Reduce Competition in Video Distribution by 
Establishing Price Floors and Limiting Price Competition 
Researchers and regulatory agencies have noted that MFNs can result in higher-not 
lower-prices, particularly if their use becomes ubiquitous in an industry, as it has in the cable 
industry. 34• 
By requiring sellers to give the MFN-protected buyer the lowest price it offers to any 
buyer, an MFN discourages the seller from offering a discounted price to any other buyers. This 
can effectively set a price floor for the product. 35 The Subcommittee found that many MFN 
32 Permanent Subcommittee on Investigations, Interview oflndependent Telephone and 
Telecommunications Alliance member officials (Oct. 30, 2015). In addition, see Senate Judiciary 
Committee, Hearing on The AT&TIDIRECTV Merger: The Impact on Competition and 
Consumers in the Video Market and Beyond, American Cable Association Testimony (1131h 
Cong.) (June 24, 20 14): "I would say from the other side as a smaller operators who often don't 
get MFN deals ... when they negotiate with programmers and they sometimes try to ask for 
different types of deals -- creative deals, deals that might address their particular circumstances, 
programmers often tell them I can't do that. And the implication is it's because they will 
implicate MFN provisions that are in larger providers' deals." 
33 Permanent Subcommittee on Investigations, Interview of Company Programming 
Distribution official (Oct. 7, 2015) (p.2). 
3
" Jonathan Baker, American University Washington College of Law, Presentation 
"Competitive Harm from MFNs:Economic Theories" (Sept. 10, 2012); Stephen Smith, When 
A1osl Favored is Disfavored: A Counselor's Guide to MFNs, Antitrust, Vol27, No.2 (Spring 
2013); Bill Toth, How Parallel Most Favored Nation Clauses in Television Industry Exclude 
Competitors and St~fle Innovation, The Columbia Science and Technology Law Review (Fall 
2013). 
35 For example, in a complaint filed against Delta Dental of Rhode Island, the DOJ 
alleged that Delta Dental, which served 35---40% of people with dental insurance in Rhode 
Island, had MFN agreements with about 90% of the state's practicing dentists, used MFNs to 
restrict dentists from lowering prices and from participating in other insurers' discounted plans. 
In this case, these agreements restricted the dentist from charging non-Delta Dental patients less 
than the fees established for Delta Dental patients. If the dentist did offer non-Delta Dental 
The Honorable Ajit Pai 
February 6, 2017 
Page 10 
provisions require networks to compare all deal terms and provide annual MFN certification 
letters to MVPDs that often include "give backs" based on new deals with other IvfVPDs. 
Through these certification letters, MFNs can effectively force networks to inform MVPDs about 
what their competitors are doing, as well as provide them additional concessions. The result has 
been called identical to collusion----except that MVPDs don't have to collude, since the MFNs 
require the programmers to perform that function for them. Additionally, MFN provisions can 
be enforced through the use of audits by third parties. The relatively small group of 
''independent auditors'' used by multiple MVPDs may also provide "clues" and/or direction to 
another MVPD as to what their competitors are doing and on which networks to focus audit 
resources.36 
Researchers have also noted that by using an MFN, sellers are committing to compete 
less aggressively since they are unable to offer discounts. Buyers may be less likely to bargain 
aggressively for two reasons: (1) they feel that the MFN protects them from paying more than 
their competitors and thus may be more willing to accept supra competitive prices; and (2) as the 
use ofMFNs grows, a buyer is less likely to negotiate aggressively, since its competitors will 
receive any benefit it manages to obtain. 37 A former MVPD executive stressed the need to 
reevaluate the use ofMFNs in the cable industry, stating that, "more often than not, the MFN 
results in inflated rates fOr content that might not otherwise survive in a free-market environment 
(yeah, you may be overpaying, but so is everyone else)."38 
Despite the longstanding use ofMFNs and the counterargument that these provisions 
keep programming costs down, MVPDs have repeatedly highlighted the increase in 
programming costs as one reason for the increasing cost of video subscription services.39 In fact, 
in its assessment of competition in the cable industry, FCC cited data showing that MVPD 
patients services at lower prices, he or she would have to offer the same price for all Delta­
Dental patients. Delta Dental of Rhode Island consented to a final judgement in which it agreed 
to refrain from using MFN clauses in their agreements with participating dentists. U.S v. Delta 
Dental qfRhode Island, Civil Action No. CA 96 113(D.RJ. 1996). 
36 Internal PSI document. 
37 Bill Toth, How Parallel Most Favored Nation Clauses in Television Industry Exclude Competitors and 
stifle Innovation, The Columbia Science and Technology Law Review (Fa\12013); Johnathan Baker and Judith 
Chevalier, The Competitive Consequences of Most-Favored-Nation ProviSions, Antitrust, Vol 27, No.2 (Spring 
20\3); Stephen Smith, When Most Favored is Disfavored: A Counselor's Guide to MFNs, Antitrust, Vo\27, No.2 
(Spring 20 13}. 
38 MFN Clause Favors No One in Carriage Negotiations. 
39 http://www .n bcnews. com/business/business-news/ cable-sate IIi te-tv -costs-will-eli mb­
again-2016-n484531: Permanent Subcommittee on Investigations, Interview of Comcast official 
(March 26, 20 15); Permanent Subcommittee on Investigations, Interview of TWC official 
(March 17, 2015); Permanent Subcommittee on Investigations, Interview of Charter official 
(March 13, 2015); Interview ofDirecTV official (March 3, 2015); Permanent Subcommittee on 
Investigations, Interview of Dish official (March 16, 20 15). 
The Honorable Ajit Pai 
February 6, 2017 
Page II 
programming expenses as a percent ofMVPD video revenue have risen from 34.6 percent in 
2006, to 44.6 percent in 2013. FCC also reported that the average monthly price for basic cable 
service and expanded basic service increased 4.2% and 3.3% respectively, from 2013 to 2014.40 
4. MFNs, Combined with the Use of Bundling Arrangements and Other Contract 
Provisions, May Inhibit Competition from Independent Programmers and Internet 
Distributors 
Economists and industry representatives have found that "MFNs may work to exclude 
smaller rivals and new entrants to the market, thereby limiting innovation that may benefit 
consumers. This may be exacerbated by other practices that are enforced through affiliation 
agreements between MVPDs and programmers, including channel bundling and restrictions on 
alternative distribution methods. In the carriage agreements the Subcommittee reviewed, 
MVPDs typically purchased a "bundle" of channels from larger programmers, which included 
popular "'must-have" networks, as well as niche, new, or less popular networks.41 Economists 
have argued that because an MVPD is purchasing multiple channels, they receive discounts on 
the "must-have" channel, and consumers gain a net benefit from a cheaper per-channel price than 
they would if channels were offered on a stand-alone basis. 42 
That said, MVPDs may react to the additional costs incurred from MFN-induced price 
floors, along with the requirement that they carry multiple niche networks, by limiting their 
carriage of or fees for independent programmers. One former MVPD executive stated that the 
"unspoken reality is that the MFN, coupled with the tying of services, is what keeps 
underperfonning and unneeded networks in prime channel locations while struggling 
independents, with genuine grassroots followings, remain off air. "43 For example, in 2013, 
Cablevision sued Viacom for imposing substantially higher license fees (described in the 
4° Federal communication Commission, In the Matter of Annual Assessment of the Status 
q[Competition in the Market for the Delivery of Video Programming, Sixteenth Report (April2, 
2015) (p. 57); Federal Communications Commission, ""In the Matter of Annual Assessment of 
the Status of Competition in the Market for the Delivery of Video Programming," Seventeenth 
Report (May 6, 2016)(p. 30). 
41 Bill Toth, Hmv Parallel Most Favored Nation Clauses in Television Industry Exclude 
Compelitors and stifle Innovation, The Columbia Science and Technology Law Review (Fall 
2013); Subcommittee Review of Affiliation Agreements. 
42 Gregory S. Crawford and Ali Yurukoglu, The Welfare Effects of Bundling in 
Multichannel Markets, American Economic Review (2012). 
43 Ken Tolle, MFN Clause Favors No One in Carriage Negotiations, Television Week 
(March 17, 2008). 
The Honorable Ajit Pai 
February 6, 2017 
Page 12 
complaint as a 1 0-figure penalty) for its core networks (Nickelodeon, Comedy Central, BET, and 
MTV network) unless Cablevision agreed to carry a dozen other Viacom-owned networks.44 In 
the complaint, Cablevision stated, "Cablevision has identified other general programming 
networks that Cablevision would prefer to distribute in place of the Suite Networks, including 
new networks it has not carried in the past as well as HD versions of networks Cablevision 
already carries in SD. Viacom's tie-in, however, forecloses Cablevision from carrying such other 
general programming networks." Cablevision provides some examples of networks it has 
delayed launching due to the bundling arrangements required by Viacom, including an 
independent arts network, and networks targeted toward African Americans and older viewers. 
Today, new and independent networks face challenges in financing high cost operations 
amid considerable uncertainty regarding whether they will secure carriage on enough MVPDs to 
be viable.45 The Subconunittee found that even when independent channels manage to gain 
carriage on an MVPD's system, they tend to receive subscriber fees far below those received by 
channels that receive fewer viewers, but that are associated with a large media company, and 
may have been negotiated as part of a bundle. MFNs can limit independent networks and 
MVPDs in achieving optimal negotiated results. For instance, an independent network may be 
willing to accept a less penetrated tier of service for a higher subscriber fee-but an 
unconditional MFN will give other MVPDs the right to re-tier unilaterally without having to 
accept the condition of paying the accompanying higher fee. Conversely, a network may be 
willing to accept a more highly penetrated tier of service (e.g., expanded basic) or a more 
favorable channel neighborhood at a lower rate, but an unconditional MFN will give other 
MVPDs the right to the lower rate without the other obligations.46 
New networks, even from the largest programming conglomerates, often offer an 
extended "free" service for their channels to an MVPD in return for inclusion of the network in 
the rvrYPD's new OTT wireless package, as a promotional offering to drive viewership. 
However, when a small or independent network uses these tactics, large MVPDs can demand 
free service for all the platforms on their MVPD systems (i.e., without providing the negotiated 
extensive wireless distribution) based on unconditional MFNs. Similarly, with an MFN in place, 
independent networks may not be able to agree to a period of free carriage for new OTT services 
44 Cablevisfon Systems Corp. v. Viacom Inti. Inc. Civil Action No. 13 CIV 1278 (LTS) 
(JLC) (S.D.N.Y. 2014). 
45 Government Accountability Oftice, Media Programming, Factors It?fluencing the 
Availability of Independent Programming in Televison and Programming Decisions in Radio 
(March 201 0) (GAO-l 0-369) (p. 20-21 ). According to a report cited by GAO, Fox News 
Network had invested over $150 million by the time it launched in 1996, but it was expected to 
lose up to $400 million in the next 5 years. 
46 Internal PSI document. 
The Honorable Ajit Pai 
February 6, 2017 
Page 13 
without MVPDs demanding that they receive free carriage for their primary (cable or satellite) 
. 47 
servtces. 
With regard to the effect that MFNs have on rival distributors, representatives of smaller 
MVPDs told Subcommittee staff that they are often unable to obtain MFNs. For example, in 
testimony before the Senate Judiciary Committee on the AT&T-DirectTV merger, a 
representative from a trade association representing smaller MVPDs stated: "I would say from 
the other side as smaller operators who often don't get MFN deals ... when they negotiate with 
programmers and they sometimes try to ask for different types of deals -- creative deals, deals 
that might address their particular circumstances, programmers often tell them 'I can't do that'. 
And the implication is it's because they will implicate MFN provisions that are in larger 
providers' deals." This statement conforms to the Subcommittee's review ofMFNs, which often 
indicated that certain MFN provisions applied in situations in which the programmer was 
negotiating with smaller MVPDs. 
5. MFN and ADM provisions may make it more difficult for new OTT providers to 
enter the market 
Currently MVPDs consider OVDs to be competitors and may use MFNs and other 
contract terms to address this new avenue of competition. For example, during an audit of a 
programmer, an MVPD instructed the auditor to review the programmers' agreements with an 
OTT provider, as well as their agreements with traditional MVPDs, to determine whether the 
programmer had given any distributors a better deal in violation of the MFN. 48 In addition, the 
Subcommittee found emails in which MVPDs indicated concern about the potential for OTT 
distribution to compete with their product. For example, in one confidential email, an MVPD 
representative asks a programmer who is launching its own OTT service, "One question I forgot 
to ask is whether you plan to engage in a widespread marketing campaign for X? Since the 
product will potentially encourage cord cutting, it will be helpful for us to understand how it will 
be marketed and whether our customers are going to be encouraged tO buy the product."49 The 
Subcommittee also reviewed another confidential email that reinforced the potential for OVDs to 
disrupt the traditional cable market. In the email, an MVPD representative contacts a 
programmer regarding the decision of a third-party studio to sell content directly to Netflix, 
stating that "these kinds of deals will kill your [the programmer's] business," and indicating that 
the MVPD was considering dropping the network because, "the real issue is substitution. This 
47 Internal PSI document. 
48 During an audit of one programmer's agreements with competing services, the MVPD 
asked the auditor to review that programmer's agreements with an OVD provider. See Internal 
PSI Document. 
49 Intemal PSI document. 
The Honorable Ajit Pai 
February 6, 2017 
Page 14 
kind of arrangement incents us to buy shows directly from [the studio] and forego the less 
efficient and likely much more expensive endeavor of buying the linear network at all."50 
Many carriage agreements include ADM provisions that explicitly limit the ability of 
programmers to provide content to online distributors. For example, contracts may require the 
programmer to wait a certain amount of time before offering content via online distribution. 
However, in order for OTTs to become viable options for consumers seeking an alternative to 
traditional MVPD service, access to high-valued programming is important.J 1 Based on our 
limited review it appeared that in some cases, independent and smaller programmers were 
subject to more stringent restrictions with respect to their ability to provide content to OVDs. 
For example, agreements between MVPDs and smaller programmers often include a "hold back" 
period that prohibits the programmer from offering content over the internet for periods ranging 
from three to twelve months after it airs on the MVPD1 s system, thereby eliminating the 
programmer's ability to offer its linear network in real-time via an OVD or its own website. 
Even after the hold-back period expires, the agreements often state that any content provided 
over the internet must not be branded or contain the logo of the network. 52 In addition, the 
Subcommittee found evidence ofMVPDs contacting programmers to require that they not live­
stream major events, although the programmers argued that this limited streaming fell within the 
-, bounds of the agreement.' 
Additionally, programmers' incentive to provide content to OVDs is also somewhat 
constrained because programmers may have a vested interest in the traditional MVPD 
distribution model, particularly since this model has enabled programmers to package many 
networks onto households' cable packages. 54 For example, when Verizon announced anew TV 
package that would give consumers the option to purchase a slimmer base channel package and 
then choose among various additional "channel packs" (such as sports, kids, news, lifestyle), 
ESPN sued Verizon, claiming that putting the ESPN channel into an ad-on package, rather than 
the base package, violated its existing licensing agreement. According to press reports, radio and 
television channels owned by parent company Disney refused to air ads for the new Verizon 
50 Internal PSI documents. 
51 Federal Communications Commission, In the Matter of Annual Assessment of the 
Status ofCompetilion in the Market for the Delivery of Video Programming, Seventeenth Rep01t 
(May 6, 2016) (Para. !53). 
52 Permanent Subcommittee on Investigations, Interview of Company Programming 
Distribution representative (Oct. 19, 20 15) (p.l3). 
53 Internal PSI document. 
54 Government Accountability Office, Video Marketplace, Competition is Evolving and 
Govemment Reporting Should Be Reevaluated (June 2013) (GA0-13-576) (p. 7). 
The Honorable Ajit Pai 
February 6, 2017 
Page 15 
service. 55 At a recent conference, Disney's Chief Financial Officer noted the impmtance of 
bundling to the company, stating that that OVDs would have to buy the package of products 
Disney sells and offer a service that "looks very much like the existing MVPD offers." Indeed, 
SlingTV, which was the first OTT service to offer Disney~owned ESPN (commonly considered a 
must~have channel, and the most expensive channel on basic cable), also carries a number of 
other networks owned by Disney, such as ESPNU, Fusion, and FYI, among others. In fb.ct, 21% 
of the channels provided on Sling TV are owned by Disney. 
The net effect ofMFNs and other contractual agreements, combined with MVPD and 
larger programmers' potential interest in maintaining a status quo, may make it difficult for OVD 
start~ups to oftE:r a service that is substantially different in terms of price and packaging from 
traditional MVPD services, but still offers the benefits consumers may be attracted to. For 
example, the FCC cited reports that Intel abandoned efforts to launch an OTT linear service in 
large part due to the costs of obtaining programming. 56 The FCC noted that "content owners 
require content distributors to guarantee a minimum number of subscribers during a multi~year 
agreement, obligating the distributors to incur large fixed costs for content up front. Intel's CEO 
Brian Krzanich con~urred that while Intel had good technology, as a start~up it lacked the scale 
to acquire content. "j7 
Beyond price and channel availability, OTTs may struggle to gain access to other features 
important to consumers, such as the ability to record programming (which is not unifonnly 
available on Sling's offered networks) or access Video on Demand. Despite these obstacles, on 
March 14,2016, Sony launched the only linear OTT service (PlayStation Vue) that is not 
associated with a traditional MVPD (in contrast to Dish's Sling). 58 In addition, options such as 
recording programs and accessing content on demand are available. Sony offers three different 
packages, ranging in price from $29.99 to $49.99 per month (in addition to the cost of an internet 
connection capable of successfully delivering the service). While Sony provides an interesting 
55 Dan Frankel, Verizon: Disney ad blackouts slowed growth of skinny bundle to 9Ksubs 
in Q2, FierceCable (July 22, 2015) (online at: http://W\vw.fiercecable.comistory/verizon-disney~ 
ad-blackouts-slowed-growth-skitmy -bundle-9k -subs-q2/20 15-07-22). 
56 Federal Communications Commission, In the Matter of Annual Assessment of the 
Status of Competition in the Market for the Delive1y of Video Programming, Sixteenth Report 
(April 2, 20 15). 
57 Federal Communications Commission, In the Matter of Annual Assessment oft he 
Status of Competition in the Market for the Delive1y of Video Programming, Sixteenth Report 
(April2, 2015). 
58 However, it is worth noting that Sony owns the third-largest movie studio in the United 
States. 
The Honorable Ajit Pai 
February 6, 20 17 
Page 16 
example of how an OTI may be able to compete with MVPDs, it is a relatively new service, and 
it appears that its efforts to offer an even more innovative product may have been constrained. 59 
IV. Conclusion 
It is clear from the Subcommittee's review of how MFNs and ADM clauses affect video 
programming, that these provisions may be enforcing the status quo and preventing innovation 
and competition. Whi le the Subcommittee did not specifically review al l unconditional MFNs it 
is evident from our review that these provisions may be posing unreasonable restrictions on new 
and small companies hoping to enter the video programming market. Similarly, unreasonable 
ADM restrictions may be halting the progress that OTT providers have been making in securing 
rights to programming and creating products that would benefit consumers. The rule proposed by 
the FCC is a much-needed step that may help level the playing field for small and new 
programmers by removing one of the many obstacles they face in trying to enter the video 
programming market. I hope that the FCC considers the long-term effects that both of these 
contractual provisions will have on innovation in the video programming market and make a 
final decision that will benefit consumers and innovation alike. 
If you have any questions related to this comment, please contact Jackson Eaton of the 
Subcommittee Staff at jackson_ eaton@hsgac.senate.gov with any questions. 
cc: Rob Portman 
Chairman 
Sincerely, 
Claire McCaskill 
Ranking Member 
Permanent Subcommittee on Investigations 
United States Senate 
59http://www. theregister.co.uk/20 14tll/17/sony unveils guts of ott service so far for 
playstations only/ and http://www.multicbannel.com/blog/bauminator/sony-s-ott-tv-play­
priced-sel11384493.