1. Current Telecommunications Issues and Their Impact on Sports Broadcasting A presentation at the Fall 2014 Symposium of The Mississippi Sports Law Review University of Mississippi School of Law October 17, 2014 Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law Penn State University rmf5@psu.edu Web site : http://www.personal.psu.edu/faculty/r/m/rmf5/http://www.personal.psu.edu/faculty/r/m/rmf5/ Blog site: http://telefrieden.blogspot.com/http://telefrieden.blogspot.com/

2. Sports and the Last Vestige of “Appointment Television” Live video programming constitutes the only type of content that still has both consumer demand and tolerance for significant limitations on access. Consumers increasingly expect to have content access any time, anywhere, via any device and in multiple distribution and presentation formats. Incumbents have to address technology agnosticism and cord cutting. Expect a growing population of “cord nevers,” video consumers that have never subscribed to monthly service from traditional Multichannel Video Programming Distributors, e.g., cable, satellite, fiber optic and hybrid coaxial/fiber optic operators. Internet Protocol Television (“IPTV”), sometimes called Over the Top (“OTT”) television, combines software defined platforms that use broadband conduits to access live and stored content. and stored content. Incumbents have responded with on demand, “television everywhere,” provided one maintains an MVPD subscription. 2

3. Sports Access Constraints Sports Blackout Sports Blackout: Professional sports contests not available for local broadcast and MVPD carriage unless tickets sell out. For NFL games, broadcasters transmitting a signal within a 75 miles radius of a stadium may only broadcast the game if a sellout occurs 72 hours in advance of the game. In October, the FCC eliminated the rule in light of declining importance of ticket sales vis a vis broadcast rights. Note that conferences can achieve the same outcome by contract. Retransmission Consent: MVPDs receive an inexpensive compulsory copyright license, but also must negotiate with local broadcasters for the right to retransmit the signal. Revenues increased from $28 million in 2005 to $2.4 billion in 2012, a nearly 8,600% increase in 7 years. The total is expect to more than double to $6.05 billion by 2018 amounting to about 23% of total TV station revenue. The FCC has an open-ended statutory mandate to ensure “good faith” negotiations, but won’t prescribe rates, mandate binding arbitration, or ongoing carriage during a dispute. No A la Carte Requirement: MVPDs have no obligation to unbundle content tiers and offer single channels/networks. For example, ESPN benefits when almost all MVPD subscribers pay about $5.54-$6.04 a month instead of only sports tier subscribers paying much more. 3

4. Sports Access Constraints (cont.) Network Non-duplication/Syndicated Exclusivity: MVPDs cannot “leapfrog” the local broadcaster and import distant network feeds; they must black out other game broadcasts. The FCC recently proposed to eliminate these rules despite a heritage of supporting “localism.” The FCC interprets the Communications Act of 1934 as containing mutually exclusive service categories: common carriage telecommunications, broadcasting, largely unregulatable information services and cable television. Reliance on Definitions and Mutually Exclusive Classifications: The FCC interprets the Communications Act of 1934 as containing mutually exclusive service categories: common carriage telecommunications, broadcasting, largely unregulatable information services and cable television. Static definitions of what constitutes a cable television operator, signal retransmission and fair use favor status quo technologies and conventional windowing of content: linear and sequential access based on willingness to pay and the passage of time since initial release. 4

5. Sports Access Constraints (cont.) Regional Sports Networks/Sports Program Access Complaints: Mixed results in applying Secs. 616 and 628 nondiscrimination requirements both in terms of fair dealing on the terms and conditions for access to programming by a competitor and the decision whether and how to carry an unaffiliated network. Courts likely to prevent absolute refusals to deal, e,g, Verizon Fios access to Madison Square Garden network content, but less likely to mandate carriage of content arguably not like that offered by a vertically integrated venture (Weath TV). Channel Placement: The FCC cannot mandate channel placement or programming tier for specific networks, e.g., Tennis Channel. However the Commission has secured “voluntary commitments” in a merger review. For example, because Comcast created a neighborhood of similar content, it must locate both affiliated and unaffiliated networks there, e.g., Bloomberg News must be placed near CNBC. Proliferation of Non-Broadcast College Networks: Unlike the EU which mandates broadcast availability of “must see” sporting events, nothing precludes the migration of many college sports conference games to pay television. Even individual universities, e.g., Notre Dame and Texas, have created their own network. 5

6. Incumbents Overstate the Status Quo Benefits Television broadcasters control 6 MHz of valuable spectrum used by less than 10% of all video consumers. Concepts like localism, diversity, 4 th estate and the First Amendment support incumbency. Disruptive technologies, such as Aereo broadcast signal retransmission and IPTV in general, risk becoming treated as pirates. Aereo used customer assigned antennas to receive “free to air” broadcast signals. The company then used the Internet to deliver live and stored content. The Cablevision case considered as fair use subscriber directed storage and manipulation of content located at cable operator premises. The Supreme Court rejected this precedent instead deciding that Aereo operated much like a cable television operator, but one lacking the transmission facilities that are required to satisfy an FCC criterion that would confer a compulsory copyright license. 50 years ago, cable television operators supported enactment of the 1984 Cable Act that provides a compulsory copyright license in exchange for payment. This law reversed case precedent that considered broadcast signals as freely available. Aereo could not or did not want to pay and suffered the consequences, but does this decision impact cloud storage and what constitutes fair use? 6

7. Sports and the Network Neutrality Debate Most consumers favor Internet Service Provider (“ISP”) neutrality and the application of “best efforts” routing protocols. In the absence of congestion, the status quo provides a level competitive playing field between content providers and distributors in terms of “access to eyeballs.” New bandwidth intensive applications, such as IPTV and OTT increase the probability of congestion and degradation of service quality, even in the absence of deliberate efforts by an ISP to “throttle” bandwidth hogging subscribers, or to disadvantage competitors by creating artificial congestion. IPTV consumers have a quick pain threshold for QOS degradation; full motion video cannot become a slide show, or lose packets. IPTV consumers welcome QOS enhancements, including ones that offer “better than best efforts” prioritization of “mission critical” bitstreams, e.g., live programming such as sporting events and award telecasts. Companies, such as Akamai, Limelight Networks and Level 3, have generated no controversy when they enhance traffic delivery from the Internet cloud to the “retail” ISP for final delivery. The debate has focused on the “last mile.” Can the FCC prevent unfair QOS and price discrimination but allow mutually beneficial “Most Favored Nation” treatment that provides faster downloads? 7

8. Future Cases and Controversies IPTV as a “Disintermediator”—HBO to offer OTT access in 2015 w/o requiring an MVPD subscription. Others likely to follow include NFL, MLB and ESPN. The FCC soon may propose to treat linear, OTT video as an MVPD service—Aereo II? Role of the FCC in carrier and compensation disputes outside of Local Broadcast-MVPDs, e.g., Regional Sports Networks. The lawfulness of using cloud storage on premises devices to “sling” content from one location to another. Impact of data caps on wireless IPTV; lawfulness of “sponsored data” arrangements that exempt certain content from debiting monthly data allotment. Industry concentration, e.g., Comcast-Time Warner Cable and AT&T- DirecTV. Sports programming costs trigger more carriage disputes (and temporary shut downs), a migration of more content to pay channels and more MVPD surcharges and programming tiers. 8

9. 9 Source: http://pmcvariety.files.wordpress.com/2013/08/sports-vscore-large.jpg.

10. Rising Sports Content Costs Have we reached a cost tipping point? Consider the future impact of “cord shavers,” “cord cutters” and “cord nevers.” Many MVPDs refusing to pay Time Warner $4-5 per month, per subscriber for access LA Dodgers games costing $335 million annually. SEC network will cost cable companies $1.40 per subscriber in states inside the SEC footprint; 25 cents per subscriber outside. Sports channels such as ESPN and RSNs account for about 20% of all MVPD carriage fees. ESPN and TNT recently increased their annual NBA payment from $930 million to $2.6 billion. NFL-DirecTV costs $1.5 billion annually; Total NFL television rights per year: $6.5-7 billion.