Hearing Statement: "The News Corporation/DirecTV Deal: The Marriage of Content and Global Distribution"

HEARING STATEMENT: "The News Corporation/DirecTV Deal: The Marriage of Content and Global Distribution"

Good afternoon and welcome to the Antitrust Subcommittee hearing on the proposed transaction between News Corporation and DIRECTV. Just 15 months ago, this Subcommittee held a hearing to examine another deal involving DIRECTV -- the proposed merger between EchoStar and DIRECTV. Many had expressed alarm about this proposed merger and ultimately the Justice Department and the F.C.C. moved to block that deal.

The News Corporation/DIRECTV deal we are examining today is fundamentally different from the merger we examined 15 months ago. Unlike the prior deal, this one does not involve two companies that are direct competitors. Instead, News Corporation and DIRECTV compete in different markets.

In the United States, News Corporation competes primarily as a programmer, owning such properties as the Fox Network and cable networks, such as Fox News Channel and numerous regional sports networks. As a result of this ownership, News Corporation provides some of the most popular programming in the United States.

DIRECTV competes as a distributor of multichannel video programming, providing Direct satellite service to over 11 million subscribers. DIRECTV carries News Corporation programming, and other programming, to subscribers. Thus, this deal is a vertical deal, involving a combination between a supplier of programming, News Corporation, and a distributor of programming, DIRECTV.

Vertical combinations, like this one, can potentially create efficiencies for the combining parties and benefits for consumers. Vertical deals also, however, can raise competitive concerns, though typically fewer and different kinds of concerns than those raised by deals between direct "horizontal" competitors. Deals such as this one may also raise policy concerns that go beyond antitrust.

In our hearing today, we will explore both the potential efficiencies and benefits of News Corporation's combination with DIRECTV and the concerns that the deal raises. News Corporation and DIRECTV argue that numerous benefits will flow from their merger. News Corporation will bring its years of experience as a satellite operator in other countries, and its record as an aggressive, innovative competitor to the American video marketplace. For example, in other countries, News Corporation (or News Corp.) has introduced several interactive features, such as interactive shopping and interactive games with its satellite services.

If, in fact, News Corp. is successful in strengthening the competitive offerings of DIRECTV, that would likely force Echostar and the cable systems to improve their product as well, to the benefit of all pay-tv consumers. More specifically, the parties plan to explore aggressively expanding DIRECTV's local-into-local service into more of the 210 local television markets. This is an important potential benefit, and we will examine carefully how the parties plan to expand that service, and we will examine other potential benefits, as well.

Additionally, we must examine the concerns that have been raised about this deal. First and foremost, we must examine concerns that this deal will lead to higher prices for both cable and DBS subscribers. In short, the scenario that critics fear most is one in which News Corp. raises prices to DIRECTV, then wields DIRECTV as a club to batter cable companies into accepting higher prices as well -- all at the expense of consumers. More generally, critics of this deal have raised concerns about whether News Corp. will use its additional leverage as an anticompetitive weapon to unfairly disadvantage other programmers and distributors. These are complicated issues that need to be examined very carefully.

To their credit, the parties have proposed ways to address some of these concerns. Specifically, News Corp. has promised that it will abide by the program access rules, even under circumstances when those rules technically would not apply to a News Corp./DIRECTV combination. News Corp. also plans to establish an audit committee of the DIRECTV board of directors, which would ensure News Corp. deals fairly with DIRECTV. We will explore whether these protections are sufficient to ease the concerns that have been raised about the deal.

Finally, we also must look beyond the confines of this specific deal to its broader implications for competition in the industry. This Subcommittee has to ask whether the News Corp./DIRECTV transaction will set in motion a series of mergers between large content companies and distributors.

Such consolidation might leave the media in the hands of fewer and fewer vertically integrated companies -- companies with enough market power to effectively exclude independent programmers and raise prices, both to the detriment of American consumers and the marketplace of ideas. Clearly, this is an important transaction, which, if approved, would have a significant impact on how American consumers receive their news, information, sports, and entertainment. We have a lot to discuss today and I look forward to hearing from our witnesses.

I now turn to the Subcommittee's ranking member, Senator Kohl.