I TURNER BROADCASTING SYSTEM, INC. WASHINGTON CORPORATE OFFICE - I 820 First Street, N.E., Washington, D.C. 20002 I EX PARTE OR LATE FilED BERTRAM W. CARP Vice President Government Affairs (202) 898-7680 RECEIVED March 15, 1993 MAR', 1993 FEDERAL ea.wu CfFQ: NlCATI~s CClfMISSION OHIIE SECRETARY Ms. Donna R. Searcy Secretary Federal Communications Commission Room 222 1919 M Street, N.W. Washington, D.C. 20554 Re: MM Docket No. 92-265: Re ort of Ex Parte Meetin

Dear Ms. Searcy:

On behalf of Turner Broadcasting System, Inc. ("TBS"), I, met today, along with Peggy Binzel, with Robert Pepper to discuss the data and arguments raised in the comments filed by TBS in the above-referenced docket. In addition to the data already provided in TBS's comments, we submitted to Robert Pepper the attached document.

This letter and the attached copy are furnished for inclusion in the pUblic record in compliance with section 1.206(a) (2) of the Commission's rules. Please contact me if you have any questions.

. Carp

cc: Robert Pepper

TBS SUPERSTATION • TNT. ATLANTA BRAVES. CNN • ATLANTA HAWKS. HEADLINE NEWS CABLE VOLUME DISCOUNTS

Implementing the program access section of the Cable Act in a way which would void existing cable contracts with programmers by entitling all cable operators to our lowest-negotiated cable price is unnecessary and, in fact, runs counter to the intent of the section -- to spur competition to cable. This is true because reducing the quality of the programming upon which alternative distributors depend (since unlike cable systems, TVRO distributors and others do not provide broadcast stations) by siphoning off millions of cable programming dollars to cable operators cannot be good for the growth of competition. FCC access regulations which cut across previously and lawfully negotiated programmer contracts with cable operators by disallowing volume discounts -- which have been standard industry practice among both integrated and nonintegrated programmers -­ would be financially punitive in the extreme to one class of cable programmers. Giving all cable operators our lowest­ negotiated price would cost TBS $14 million per year (in addition to over $7 million revenue lost to alternative delivery systems for a total equaling almost 1/3 of TBS's yearly profits). And, Turner Broadcasting is less affected than most programmers since among our services only CNN/Headline News and The Cartoon Network have cable volume discounts. At the same time that access regulations threaten vertically integrated programmers with substantial revenue losses, our competitor, non-vertically integrated networks -- including extremely strong networks like USA and ESPN and the Disney Channel -- would remain free to maintain their quite similar cable volume discounts. The attached Kagan chart shows that the granting of volume discounts is standard industry practice, totally unrelated to vertical integration.

Volume discounts, a time-honored U.S. business practice, are particularly justifiable among advertiser-supported program services (Turner networks receive approximately 1/2 their revenue from advertising fees). To form a truly national advertising market, a network needs to be available in every media market (ADI or DMA) in one out of two households. Only a mass­ penetration technology can provide that reach. Advertisers pay more per viewer for large, mass audiences than for small, fragmented audiences. We know from our experience with the Cartoon Network, which now has only 5 million subscribers, that cable networks without broad distribution receive significantly less advertising revenue per viewer delivered than established networks like CNN and TNT. Likewise, the three broadcast networks can command advertising rates 3X those of cable networks like TNT and CNN per viewer delivered because cable networks are available only in 62% of television households while the broadcast networks are virtually ubiquitous.

Generally, advertisers who choose television do so because they are looking for mass reach. Therefore, they are willing to pay disproportionately more for larger audiences. As a result, signing up a cable system with several million subscribers not only adds a large chunk of subscriber revenues in one swoop but also greatly increases the attractiveness of a cable network to advertisers. In addition, a large cable system can provide promotion and other advantages to a cable programmers which small operators cannot or will not.

The Cable Act provides the FCC flexibility to uphold standard cable volume discounts because programmers are not prohibited from establishing different prices to take into account economies of scale or other "direct and legitimate economic benefits" attributable to the number of sUbscribers served by a distributor.

Upholding standard cable volume discounts is justifiable both on economic grounds as stated above and because it reflects the practice of non-vertically integrated programmers as well as vertically-integrated programmers. Not doing so will place in jeopardy the major asset of most cable programmers -- their lawfully-negotiated cable contracts. ,I A"ILIATE LICBNSI 'BBS, KORB EQUAL THAN 'BRCIIVID A notion A. vldely held-·••p.e1.11, aMOn••eltwhll. c.bl. ca.pet1torl .uch •• DIS--th.t lar•• HSO. obta1n hu.e vo1u.. dl.eouat. olr afr.l••te rat. c.r... So.. vol....1.count1•• e.l.t., but it certainly l••lt ..lvlr,.I. Over the lalt '~ur , ••r., tha "av.r••~· .atwork -.ntbl, lla•••• f.a ha. b.en "out 301 belov the rlt. aar' to,. Our ...l,.',-·co.,arlnl .ver••• ll,eR.a , ••• (obtalne' by dlvldln. tot.l ••twork f••• ~, .v.r••••u••) .n. to,-o'-rat. c.rd--l•••tl'led a .tant'lclnt Iroqp 0' n.tvork. th.t .,par.atl, h.v, •••llt.rl.. ,rlelnl. The•• Include 1Nt. ISrN, CHIC .n' lIT. Th. ~.t fr.qu.ntly .1.­ CouRt., network. ar••t.rtup. (.uoh ., C~d, Centr.l) end "aetvork ,..III.aN··notabl,. tb. HTV N.twork, .rqu, (HTV. Nick' vq·I). wher••'flll.t'l I.t br••k. 'o~ o.rrylna MOr. t~an oa•••rwle.. . AYBRAGE VS. RATB CARD HOtmILY LJCINSI PU ANALYSIS ~ .."....,. W.I,hted AV'''.,• ~op-ot-R.t. C...d WeJ,ht.d Av.r.g. •• , ~ r.JCI.n.. ,.. R.venu. '···"·uJng ...... LJer.n•• , ..ISub/No. £J~.n•• , ••/Sub/No. of ~op·of·R.t. C.rd UfO Uti un UtI Uf2 JIlt Ut' J"i. j'" "a, l'e2 j"1 'P'I "!O.j '''0 j", "'0 1'" (~J.' (~J.' (~I.' (MJJ.' ·····~JJJon.······ '''I 'tt' ~ TNT I 5'.1 1169.0 1231.t 1250.5 11.6 40.1 53.' '7.7 lo.as 10.15 10.36 10.36 80.IS 10.35 10.37 80.40 971 1001 971 '01 IS'M 170.0 210.0 2U.7 231.7 47.2 50.5 52 •• 54.1 O.~O 0.35 0.36 0.36 o.n 0.35 0.3. 0.40 ,. 99 94 90 CNIC 7.0 14.0 21.0 39.6 11.9 IS.2 17.t 37.2 0.05 0.01 0.09 0.09 0.01 0.08 0.09 0.10 70 91 89 In 5.1 12.7 20.6 24.3 21.a 24.8 27.' 2'.3 0.02 0.04 0.06 0.07 0.05 0.06 0.07 0.01 44 "11 II 11 i TLC 4.' 9. , 11.4 ••, 11.2 13.2 ".7 0.04 0.05 0.01 0.00 O.OS D.O' 0.07 0.07 11 77 12 eNN' 130.0 147.6'.a 170.4 184.0 46.4 .9.8 52.1 5••1 0.23 0.25 0.21 0.28 0.30 O.U 0.33 0.35 71 77 83 I'II i T1>C 21.0 32.0 44.0 A'.3 40.4 45.1 49.3 51.4 0.06 0.06 0.07 0.08 0.06 0.07 '.08 '.11 ... 93 73 USA 74.0 102.0 108.1 IU.S 43.6 47.2 50.0 52.1 0.14 0." 0.11 O.lI 0.11 0.23 0.24 0.25 "79 7' 7S 12 ,~ COURT ..- ... 2.1 7.2 .~. ... 5. I 7.0 ..~ .-. 0.03 0.09 0.00 0.00 0.13 0.13 .. .. 21 116 UB 36.0 U.O 50.0 54.0 35~9 41.2 4S.4 47.1 0.01 0.09 0.09 0.09 D. II 0.12 O. t:J O. as 76 76 71 U .... 10 fAH 22.' 26.9 42.9 48.9 41.3 44.' 47.6 50.0 0.05 . 0.05 0.01 0.01 . D.O' D.O' 0.1l O.U 57 62 68 U ~ Llrl ZI.I 31.0 41.4 49.6 39.6 44.0 41.' 41.9 0.06 0.07 0.01 D.O' O.ll 0.12 0.13 0.14 S4 60 63 60 NICI. 56.0 61.0 74.1 78.5 U.S 46.4 49.' 51.1 O. II . 0.12 O.U 0.13 0.21 0.24 0.25 0.26 SO 51 50 49 :;,. COlt -_. ... - Il.l U.O --. .-. 20.0 22.' ... ..- 0.05 0.06 ... ..- 1.11 O. U: .. .. 31 .. TNN "'0.0 54.8 60.' 67.4 41.1 45.1 41.6 49.1 0.01 0.10 0.11 0.11 O.IS 0.20 0.20 o.as S4 51 5] 41 '" HTV' 41.0 5••0 62.' 66.4 42.3 46.0 4'.5 50.3 0.09 0.10 0.11 0.11 0.22 0.22 0.24 0.25 41 48 45 44 ~ ,-we,,, 17.0 20.0 21.3 22.4 35.9 40.2 41.9 46.7 0.04 0.04 0.04 0.04 0.19 D••' 0.10 0.10 ". 49 41 40 em 0.' 1.5 I.' 2.2 1.4 1'.1 12.2 Is.a 0.01 0.01 0.01 0.01 0.03 0.05 0.0' 0.08 26 25. IS IS QJ VU" 0.4 O.S 0.' 0.7 ---liL:L33.1_:ll.2~~O.S_I.Q.LO.QO O.GO O.GO ._ ~ •• _.0.03_ ••OLO.OS_-_-_ .. 1 3 ror/Ava t721 11,001 tl,212 11,321 29.' 33 •• 38.4 41.1 10.01 to.IO '0.11 '0.12 to.12 to.14 10.17 to.I. 691 731 69% 67% • Ii••the.. C J ...t •• a..e ....4 on ... JGCJaU-m. not .h. 01 • .,.t.. wltJcIt .t.., t. c.... clJ.OOUllt .....JIJ.J.. 'DJeeaunh Mil .ppl., to.. ~ d.,e 01 _UJpl. fan.r ••rdee.. 'DJ.ccrunt....., .pp'" to.. e rA0t9. ot _JtApJ. NTV lI.tllo.." a,"",'e••• • 'I"!"_ ....'J t •• clOWIW..... 110. A.C. "".la.n crount•• wh'ch "nclude HJ."... hCIoJlup...... "JtJpJ.·..UJng unJh•

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TURNER .ROADCASTING SALEI. INC. 420 FIfItI Avenue. New YOlk, New York 10018

JOHN M. IARBERA PreIIdlnt (212) 852.e834

! AFFIDAVff OF }JOHN M. BARBERA

I l . I I am President of Turner Broatfcastlng Sales, Inc., 8 division of Turner Broadcasting System, Inc. responsible for the sale of 811 national advertIsing time on the Turner networks and syndicated properties. Having lolned the company in the 1978 as an accourt executive, I was promoted to Senior Vice President of TeS Sales in 1984 and executive Vice President In 1989, respectively. I have been in my cur~ent position since 1990.

As in most Industries, prices for advertising on ad-supported. cable networks are directly related to th~ value of the product to the customer and market supply and demand.! For national advertisers, the value of television lies In its technical ab!lfty· to reach a large segment of the population, or Its mass reach. Accordingly, advertisers pay disproportionately more per viewer ~or large, mass audiences than for small, fragmented audiences. My experience and research stUdies to which Turner subscribes from tlme-to-time SUPPO" these findings. , For example, the broadcast networks command advertising rates three times those of cable networks in general per viewer delivered because those cable networks are available in only 65 % of television households. Broadcast networks, In contrast, ~each virtually every television household and therefore provide more reach f9f the advertiser.

This same relationship exists within the cable universe. A smaller based network in terms of subscribers cannot command the same level of costs per thousand as a network with a high subscriber base.

TBS • ATlAN17' BRAVES • HANNA-BARSER.', • CNN • ATLAN'm HAWKS • HEADUNENEWS • TNT