8

in major markets, already faced with heavy exclusivity for movies and series, have counted on sports as the redeeming factor to develop the planned operation." Of course, these cable authorizations have been granted with the recognition that their rights to carry sports broadcasting can be limited or eliminated by FCC rule or Congressional action.

III. MASSIVE DISRUPTION OF THE SYSTEM

Unrestricted Cable Transmissions Will Cause a Massive Disruption of the Present System of Distribution of Baseball Telecasts.

The plight Baseball faces can be understood only against the background of the distant signal rules which the Commission adopted on February 2, 1972, and made effective the following March 31. Essentially, the rules would permit CATV systems operating in metropolitan communities in which Major League Baseball teams are located to import the signals of two or three distant independent (non-network) stations. The distant signals could be imported from any market in the nation which is not in the top twenty-five markets. However, if the distant signal is to be imported from one of the top twenty-five markets, then the system would have to use signals from stations located in either of the two nearest of the top twenty-five markets. As a practical matter, most of the importation of distant signals which will affect Baseball will come from the top twenty-five markets.10 This is because the major independent television stations in the largest metropolitan centers happen to be the wealthiest independent television stations in the country with the best and most lucrative movie and sports contracts offering the most popular programming. This development is inherent in the structure of the new cable television rules, a structure which favors a very few, well-established independent television stations like WOR-TV in New York and WGN-TV in Chicago.

The following examples illustrate the point:

Chicago is the nearest of the twenty-five largest metropolitan areas to Milwaukee and would be the logical source of independent station signals to be carried by a Milwaukee CATV operator. The Chicago Cubs' broadcast rights are held by WGN-TV, an independent, which this year is telecasting 148 of the 162 regularseason Cubs' games. A second independent, WSNS-TV, holds broadcast rights to the White Sox games and will telecast 129 games this season. These independent stations are likely candidates to be selected by CATV for distribution in Milwaukee's home territory. Thus, added to the telecasts which the Brewers have authorized, an additional 277 Baseball games could be made available in Milwaukee's home territory, only some of which would be required to be deleted when the Brewers were playing at home under proposed FCC rules.

Chicago and Milwaukee are the nearest of the top twenty-five markets to Minneapolis-St. Paul, home of the Minnesota Twins. Since rights to the Milwaukee Brewers games are held by a network station, a cable system operating in Minneapolis could not obtain those games, but the same service from Chicago could be provided in Minneapolis as in Milwaukee with the same impact on the Twins." Indeed, the cable television system recently authorized and now abuilding in Bloomington, Minnesota (pop. 81,761), site of the Twins' Metropolitan Stadium, has already received FCC authorization to import the distant signal of WGN-TV. This means that any cable subscribers living in the shadow of the Twins' Stadium can have access to 148 televised Chicago Cubs games. A CATV system operating in San Diego (the fifty-second market) could also bring in two distant independent signals. It would most likely select those from

8 NCTA legislative letter, Apr. 11. 1972.

Cable Television Service, Part 76, 47 C.F.R. § 76.5 et seq. (1972).

10 That the problems are critical for Baseball is clear from these additional facts. There are 151 Major and Minor League teams in the United States which play in almost as many different communities. An analysis of Television Factbook's 1972-1973 Services Volume reveals that, in all but a handful of communities which have Professional Baseball teams, there are CATV systems in operation; franchises outstanding for CATV systems; or franchise applications pending and under active consideration.

Chicago is also one of the two top twenty-five markets nearest Kansas City where the Royals play.

San Francisco and Los Angeles, the nearest of the top twenty-five markets which carry Giants, Dodgers and Angels games.

12

Both the New York Yankees' and the New York Mets' broadcast rights are held by independents. WPIX-TV is telecasting 69 Yankees' games this season, and WOR-TV is telecasting 112 Mets' games. The signals of these stations are plums for cable systems which are eligible to carry them under FCC regulations. Systems operating in the heart of the Philadelphia and Boston home territories have already been authorized to carry these signals-and their consequent impact upon attendance and broadcast rights of the Phillies and Red Sox. Boston is perhaps experiencing the most dramatic invasion from the New York teams. Eleven communities within 35 miles of downtown Boston have received authorizations from the FCC under the new cable television rules to carry the distant signals of the Yankees' and the Mets' flagship stations, WPIX-TV and WOR-TV. This means that these 11 Boston area cable television systems are authorized to carry all 181 televised games of the Yankees and the Mets.

To date there has been no cable development in the City of Boston itself. However, one nearby Boston suburb, Somerville, Massachusetts, from where across the Charles River one can see Fenway Park, has received one of the eleven FCC authorizations, and construction of a cable system is underway. Today the Somerville cable system has only 69 subscribers; but the potential in Somerville, with a population of 88,779, is far greater.

The Montreal Expos are carried on Canadian television stations in both French and English. Presumably, every CATV system in this country could lawfully carry the signal of a foreign language station carrying Expos Baseball.13

The foregoing are, of course, illustrative only and do not exhaust the potential for conflicting telecasts of Baseball games from distant markets. As pointed out next, unless Baseball controls the distribution of its product, there is a substantial threat that numerous teams, both Major and Minor Leagues, and ultimately Professional Baseball itself, may well be irreparably injured.

IV. ECONOMIC HARDSHIP FOR BASEBALL

Unrestricted Cable Transmissions Will Seriously Undermine the Ability of Baseball to Obtain Substantial and Essential Revenues From the Sale of Telecasts of Sports Contests.

The critical concern of Baseball with unrestricted cable transmissions is that it will almost certainly undermine the potential sales value of current Baseball telecasts-both on the league and individual team levels. The dangers which this situation poses to the continued health and vitality of Baseball cannot be overstated.

1. The Widespread Presentation of Baseball Telecasts Under the Present System. A discussion of the effect of unrestricted cable transmissions must be presented in the context of the current pattern of distributing Baseball contests. The most obvious point is there is no shortage of telecasts of Major League Baseball games. Nationally, at least one game (the NBC Game of the Week) is carried over a national network each week during the season in approximately 190 television markets. In addition, there are 15 Monday night games carried nationwide. These games are selected for maximum audience interest based upon the current state of the various pennant races. And of course the most significant events in Baseball-the World Series, the two League Championship Series, and the All-Star Game-are also carried by NBC throughout the nation. Beyond this, each major league team determines the extent to which it will authorize local telecasts of its own games, and these telecasts provide additional viewing fare for millions of Americans. Every Major League team has authorized telecasts of some of its schedule. These individual contracts (exclusive of that of the Montreal Expos, whose games are not telecast in any United States market) in 1973 will result in 1,093 regular league games telecasts on 173 different television stations. The tables set forth below reflect the extent of such individually authorized telecasts planned for the 1973 championship season.

12 The Los Angeles independents which hold the rights to the Dodgers and Angels games, may in any event, be "significantly viewed" in San Diego and the signals would not be counted against the two distant station allotment.

13 Section 76.61 (e), 47 C.F.R. § 76.61 (e) (1972).

SUMMARY OF PLANNED HOME AND AWAY GAMES TELECAST, BY TEAM, 1973

The decision by each team to authorize a given number of telecasts takes into account a variety of considerations, including the possible impact of telecasts on home attendance. Many teams have elected not to authorize telecasts of their home games because of the impact on gate attendance." In fact, it appears that the trend is to telecast even fewer home games to protect the gate and increase the telecasts of away games.

Moreover, where a "network" station is located in the community of a Minor League team, most teams will not clear their game telecasts into that market when a telecast would conflict with a home game of the Minor League team. 2. The Importance of Telecasting Revenues to Baseball. Baseball's established pattern of television would be seriously disrupted by unrestricted cable transmission, with the most serious potential adverse effect upon the existing property rights in live Baseball telecasts.

These rights are extraordinarily valuable to Baseball; indeed, I believe they are indispensable to the continued economic viability of Baseball. The contract for the sale to NBC of rights to the Game of the Week, the Monday Night Game, the All-Star Game, the two League Championship Series, and the World Series for the years 1972 to 1975 will result in payments of over $70 million to Baseball. The keystone of these network contracts is, of course, the degree of sponsor exclusivity which Baseball can now assure NBC.

Moreover, the contracts negotiated by individual teams with local television stations, and in many cases local and regional networks, for exclusive broadcasts of their home and away games (with radio rights) are estimated at an additional $23,000,000 for this year.

It is clear that revenues from the sale of such rights are a principal underpinning of Baseball's structure; any diminution would simply compound the critical economic problems which Baseball now faces at both the Major and Minor League levels.

A substantial number of Major League Clubs operate below or very near the economic break-even level; decreases in television revenues and home game attendance, which could be caused by unrestrained cable activity, could be fatal. Significantly, broadcast rights at the national and local levels provided more than 25 percent of Major League Baseball's total operating revenues in 1969. Ex

14 Three-fourths of the telecasts of home games are in two cities-New York and Chicago where experience has shown that the market is so large, etc., that such telecasts bave a minimum impact upon the home gate.

hibit B shows the dollar value of and contribution to operating revenues of broadcast rights for all Major League teams. These financial data demonstrate that broadcast revenues are absolutely essential to Baseball's survival. The most recent study of Baseball's financial results, prepared by Arthur Anderson & Co., for the year 1969, indicated that 13 of the 24 Major League Clubs suffered losses, some of them very substantial. The aggregate results for all 24 clubs in 1969 showed total losses in the millions. Thus, with these bleak operating results, any diminution of Baseball's broadcasting revenues could threaten the very continued existence of the sport.

3. Indiscrimate Cablecasts Could Seriously Impair the Revenues That Baseball Receives From Television. To give cable systems a compulsory license to telecast distant baseball games would assuredly have an immediate impact upon the price which a broadcaster or sponsor would be willing to pay for the broadcast rights to a given Club's games. To illustrate, the broadcaster pays the Club for the rights to telecast a certain number of the Club's games. The broadcaster can sell the games to sponsors on the basis that these telecasts will be the primary source of televised Baseball entertainment in a particular community during the regular season. If, however, a cable system can provide thousands of the city's residents with literally hundreds of other distant Baseball games from distant communities, the broadcaster and the sponsor naturally will pay far less for the rights to the home team's games than would otherwise be the case. This loss of revenue could have the most serious consequences, as outlined above.

Furthermore, the ultimate effect of unlimited cable transmissions could be so severe that independent stations would no longer be considered by Baseball Clubs to be eligible for the purchase of broadcast rights. In order to secure the protection which Baseball needs, all teams may be forced to deal only with network-affiliated stations. However, this decision itself could have serious consequences; independent stations today provide a strong source of competition for television rights. The removal of this competition can have only an adverse effect upon potential revenues.

15

V. PLIGHT OF THE MINOR LEAGUES

The Proliferation of Cablecasts Could Cause the Death of the Minor Leagues. Baseball has a special interest-separate and distinct from that of copyright owners generally and other professional team sports-in protecting its Minor League system against unwarranted intrusion from telecasts of Major League teams.

At this time, there are 17 Minor Leagues in the United States comprised of 127 individual United States teams. In 1971, there were more than 7,300 Minor League games played before approximately 11,000,000 fans. Minor League Clubs are the principal source and proving ground for Major League players in addition to being an important source of entertainment for millions of Americans. No other professional sport operates a player-development system of even remotely comparable magnitude. Indeed, the Minor Leagues exist only because of the direct subsidies provided them by the Major League Clubs and the working agreements which have evolved between Minor League teams and Major League Clubs. In 1969 alone, more than $31 million (or 25 percent of operating revenues) was expended by Major League Baseball on player development, the majority of which went to the major league. Unlike professional football, which utilizes the nation's universities and colleges as its proving grounds for players, Baseball must spend these substantial amounts to ensure to the fans a steady flow of talent.

As noted above, virtually all of the smaller and medium size communities which have Minor League teams have cable systems in operation, franchises outstanding for cable systems, or a franchise application pending under active consideration. Thus, these communities are open for the wholesale importation of sports broadcasts by local cable systems.

There is persuasive evidence that such unregulated expropriation of live Major League games by cable systems could seriously affect Minor League attendance. An inquiry regarding potential cable impact upon Minor League operations produced the following comments:

16

15 Professional Football, which sells all of its rights on a package basis to the national networks, does not, of course, confront the same problem Baseball does. Particularly in the metropolitan market where "adequate service" is already provided, cable systems cannot bring in distant network stations with competing football telecasts.

16 See Exhibit C for a collection of responses from Minor League teams.

"I definitely feel that CATV would kill practically all of our fans we have left."

"It is my definite opinion that telecasts [by] cable [of] league games into this area would definitely hinder our attendance. I do not have to remind you that attendance in Minor League Baseball parks is a nationwide problem and any further infringement of telecast baseball broadcasts would probably make it impossible for most minor league clubs to continue a successful operation. It is too easy even now to stay at home and watch television than to go out and support your own local activities whether it be baseball, hockey or basketballand we have all three in Salem."

"Again, in my opinion, CATV in this area would come close to being the death knell of Minor League Baseball in Rochester. We are trying by every promotional means possible to keep AAA baseball in Rochester for the benefit of the entire community and are attempting in every way possible to provide wholesome recreation for families and youth in Rochester. I feel it is about time we had help instead of hindrance."

"If we were to be exposed to this type coverage, there would be no doubt in our minds that it would affect our attendance seriously.

"Obviously, if such telecasts were to reach our city, our attendance would suffer drastically."

A reduction in gate attendance at Minor League games with a corresponding reduction in revenues would pose a dilemma for the Major Leagues which do not have available additional resources to keep the Minor Leagues in operation.

VI. CONCLUSION

In summary, I believe there are sound legal, public policy, and practical reasons why Baseball must maintain control over the dissemination of its games to the viewing public. The Federal Communications Commission's new regulatory scheme for cable television will permit the development of cable in such a way that it could completely undermine Baseball's orderly telecasting patterns and, hence, seriously dilute the value of Baseball's gate receipts and broadcasting rights.

While Baseball is anxious to experiment with the promises of the new cable technology, it is fundamental for Baseball to have complete control of the rights to its games in order to strike an appropriate balance between Baseball's traditional commiment to over-the-air broadcasting and any experimentation with cable television.

EXHIBIT A

See the attached black binder for the complete survey, with a covering memorandum, commissioned by the Commissioner of Baseball to study the effects of the first year of the Federal Communications Commission's new regulatory structure for cable television.