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FCC Adopts Post-Digital Transition “Must-Carry”
Rules, Extends Ban on Exclusive Programming Contracts, and Opens
Inquiry Into “Tying” Agreements
By Burt
Braverman, Chris
Fedeli and James
Tomlinson
[September 2007]
On Sept. 11, 2007, the FCC adopted an order setting rules governing
the carriage of broadcast signals by cable operators for a period
of at least three years after the Feb. 17, 2009 transition from
analog to digital broadcasting. Under new rules reflecting a
compromise position offered by the National Cable & Telecommunications
Association, cable operators whose systems are not all-digital
will be required to carry two, and possibly three, streams of
each signal of every local broadcaster that elects “must-carry”
carriage—one stream in digital and one stream in analog
format, and possibly a third stream in high-definition as well.
However, the FCC rejected a proposed requirement that cable
operators “pass-through” all of the “bits”
in digital broadcast streams in favor of maintaining the existing
requirement to carry signals with “no material degradation,”
i.e., with picture quality as good as any other programming
carried by the operator.
At the same meeting, the FCC voted, as expected, to again extend
for five years the existing prohibition on exclusive distribution
agreements between cable operators and cable-owned programming
networks, and to require disclosure to program-access complainants
of certain network affiliation contracts. The FCC also adopted
a Notice of Proposed Rulemaking (NPRM) commencing an inquiry
into the alleged wholesale “tying” of marquee programming
with less desirable or unwanted program services, which some
think may also provide a segue into the issue of a retail “à
la carte” programming mandate for cable operators.
The new rules were adopted at a meeting that was delayed 12
hours while the commissioners negotiated the details of the
final decision. The full text of the Commission’s action
has not been released, and it may be weeks before it becomes
publicly available. The text of the final order undoubtedly
will reveal details of the actions that are not evident now.
However, based on the FCC’s formal news release and the
statements made by the commissioners at the meeting and in their
accompanying press releases, we can provide the following summary
of these important FCC actions.
Digital Must-Carry Rules
The Communications Act requires that cable operators carry
the primary video signal of all local broadcasters that elect
must-carry. With the ongoing transition to digital broadcasting,
in order to ensure that cable subscribers without digital televisions
or set-top boxes would not lose their ability to view local
television signals, many cable operators whose systems were
not all-digital already had begun carrying both the analog and
digital signals of the most popular broadcast stations. These
operators had been planning to continue such carriage after
the 2009 digital transition. However, cable operators opposed
the FCC’s proposed dual-carriage mandate, preferring instead
to carry both analog and digital signals voluntarily according
to marketplace demand; the cable industry already had reached
a dual-carriage agreement with non-commercial broadcasters.
In contrast, commercial broadcasters argued that a federal mandate
was necessary to ensure that their signals would remain viewable
to all cable subscribers after the digital transition.
The order finally adopted by the FCC embraced a compromise
position offered by the National Cable & Telecommunications
Association and imposes less drastic requirements on the cable
industry than initially proposed by the Commission. Under the
FCC’s initial proposal, dual-carriage of broadcast signals
would have been required indefinitely until a cable system was
fully converted to digital, so that all subscribers could view
digital signals with set-top boxes; all-digital systems would
be required only to carry the digital signal, so long as they
provided necessary set-top boxes to subscribers. Instead, the
FCC imposed only a three-year dual-carriage requirement on non-digital
cable systems, although it is subject to renewal by the Commission
at the end of that period. As initially proposed, the Commission
also adopted a requirement that, post-transition, cable operators
carry the high-definition broadcast streams of must-carry broadcasters’
signals, which therefore may result in some cable systems being
subject to a triple-carriage requirement.
Cable systems with less than 552 MHz of capacity may request
a waiver of the Commission’s dual-carriage requirements.
While the cable industry had requested a blanket waiver for
these systems, the FCC will instead review the waivers on a
case-by-case basis. This decision prompted a dissent from Commissioner
Jonathan S. Adelstein, who favored the blanket waiver so that
small systems could spend their money on operations rather than
on pursuing waiver requests. The Commission also will issue
a Further Notice of Proposed Rulemaking seeking ways to minimize
the economic impact on small cable operators of complying with
the new obligations.
The Commission also had proposed in its NPRM a requirement
that cable operators pass-through all of the bits in a digital
broadcast stream, which the cable industry had viewed as a back-door
attempt to impose a “multicast must-carry” rule
that essentially would require carriage of several streams of
different content from each broadcaster encompassed within all
of the bits in a digital broadcast stream; the FCC had twice
before rejected such proposals. Cable operators also contended
that such a requirement would have prevented them from using
digital compression technologies to conserve bandwidth that
could be better used for carriage of non-broadcast networks
or other services, such as high-speed Internet and VoIP telephone.
The “all-bits” proposal was rejected by the FCC,
which chose instead to maintain the existing requirement that
signals be carried with “no material degradation,”
i.e., with a picture quality as good as that of any other programming
carried by the cable system.
Program Access and “Tying” of Program Services
The prohibition on exclusive cable network programming agreements,
enacted as part of the 1992 Cable Act, was originally scheduled
to sunset on Oct. 5, 2002. However, Congress authorized the
FCC to extend the prohibition upon a finding that it “continues
to be necessary to preserve and protect competition and diversity
in the distribution of video programming.” In 2002, the
FCC extended the prohibition for five years until Oct. 5, 2007,
and with yesterday’s unanimous vote, the ban is extended
another five years, to Oct. 5, 2012.
Section 628(c)(2)(D) of the Communications Act and Section
76.1002(c) of the FCC’s rules generally prohibit exclusive
contracts for satellite cable programming between vertically
integrated programming vendors and cable operators in areas
where a cable operator is providing service. Thus, the rules
require that any satellite cable programming service in which
a cable operator has an attributable ownership interest (defined
as five percent or more) must make that programming service
available to “alternative” multichannel video program
distributors (MVPDs), including DBS providers, ILECs providing
cable service, SMATV systems and wireless cable operators that
compete with the vertically integrated program network’s
cable operator affiliates.
Despite the significant industry developments that have occurred
since 2002—including continued subscriber growth by DBS
providers, DBS “exclusive” programming, and the
increase in the provision of competing MVPD service by ILECs,
most notably, Verizon and AT&T—the FCC found that
the ban “remains necessary for viable competition in the
video distribution market.” The Commission concluded that
vertically integrated programming “is some of the most
popular programming available today, for which there are not
good substitutes.” The Commission also voted to amend
its program-access complaint procedures, to require disclosure
to complaining parties of the affiliation agreements of vertically
integrated program networks against whom they file program-access
complaints.
The FCC also issued an NPRM seeking comment on two further,
significant changes to its program access complaint procedures.
First, the FCC is requesting comment on whether to allow complainants
to seek a temporary stay of any proposed changes to existing
contracts that are the subject of a program-access complaint.
Such a rule, if adopted, would allow the Commission to order
MVPDs and program networks engaged in a dispute to maintain
the status quo during the pendency of a complaint proceeding.
Second, the NPRM seeks comment on creating an arbitration-type
step in the complaint process, whereby the Commission may request
that the parties submit their “best and final” offer
proposals for the rates, terms and conditions under review.
The NPRM also seeks comment on whether it should extend the
Commission’s program-access rules, including the exclusive
contract ban, to terrestrially delivered cable programming,
as the DBS industry, ILECs and other alternative MVPDs have
advocated. The cable industry and cable networks have opposed
rule extension on the ground that it would exceed the FCC’s
authority under the governing statute.
Finally, the NPRM opens an inquiry into whether the FCC should
prohibit wholesale “programming tying arrangements,”
which are defined as “the practice of some programmers
to require MVPDs to purchase and carry undesired programming
in return for the right to carry desired programming.”
The NPRM asks whether the Commission should require “all
programming services to be offered on a stand-alone basis to
all MVPDs.” Such a rule would have broad implications
for the television programming industry, and would significantly
alter the economic relationship between MVPDs and program networks.
Language used in Chairman Kevin J. Martin’s accompanying
statement also suggests the possibility that he may intend to
extend this inquiry to a possible retail à la carte requirement,
an approach he has long championed and that cable operators
and program networks have strenuously resisted. The FCC under
then-Chairman Michael Powell conducted an inquiry into à
la carte and issued a report concluding that it would not benefit
most consumers and would harm program diversity. After his ascension
to chairman, Kevin Martin requisitioned a “Further Report”
on à la carte that disputed some of the prior report’s
conclusions, though it did so without soliciting additional
comment or adducing any new evidence. The new NPRM may be an
attempt to build a record more supportive of Chairman Martin's
interest in advancing à la carte options.
Davis Wright Tremaine will be filing
comments in response to the FCC’s Program Access NPRM
on behalf of certain clients. For further information or to
participate in these FCC proceedings, please contact:
Burt
Braverman, Washington, D.C., (202) 973-4200, burtbraverman@dwt.com
John
Seiver, Washington, D.C., (202) 973-4200, johnseiver@dwt.com
David
Oxenford, Washington, D.C., (202) 973-4200, davidoxenford@dwt.com
Robert
Corn-Revere, Washington, D.C., (202) 973-4200, bobcornrevere@dwt.com
Maria
Browne, Washington, D.C., (202) 973-4200, mariabrowne@dwt.com
This advisory is a publication of the Communications Group of
Davis Wright Tremaine LLP. Our purpose in publishing this advisory
is to inform our clients and friends of recent developments
in the communications industry. It is not intended, nor should
it be used, as a substitute for specific legal advice as legal
counsel may be given only in response to inquiries regarding
particular situations.
Copyright
© 2007, Davis Wright Tremaine LLP.
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