FCC Issues New NPRM to Consider Further Extending Ban on Exclusive Cable Network Programming Contracts

On Feb. 20th, the FCC released a Notice of Proposed Rulemaking (NPRM) requesting comment on whether it should again extend the existing prohibition on exclusive distribution agreements between cable operators and cable-owned programming networks. The exclusivity prohibition, enacted as part of the 1992 Cable Act, was originally scheduled to sunset on Oct. 5, 2002. However, in the Cable Act, Congress authorized the FCC to extend the prohibition upon a finding that the prohibition “continues to be necessary to preserve and protect competition and diversity in the distribution of video programming.” In June 2002, prior to the originally scheduled sunset, the FCC extended the prohibition for five years until Oct. 5, 2007. The FCC’s recently released NPRM primarily raises the question of whether to extend the exclusivity prohibition yet again. It also seeks comment on whether and how its complaint procedures for program access disputes should be modified.

Section 628(c)(2)(D) of the Cable Act and Section 76.1002(c) of the commission’s rules generally prohibit exclusive contracts for satellite cable programming between vertically integrated programming vendors and cable operators in areas where an 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” multi-channel video programming distributors (MVPDs). Such distributors include direct broadcast satellite (DBS) providers, incumbent local exchange carriers (ILECs) providing cable service, satellite master antenna television systems and wireless cable operators that compete with the programming service’s cable operator affiliates. Conversely, the ban, which is limited to cable-owned networks, does not affect DBS providers’ exclusive programming agreements, such as DirecTV’s NFL Sunday Ticket programming package.

In 2002, the FCC found it was “necessary” to extend the prohibition on exclusive contracts to “preserve and protect competition and diversity in the distribution of video programming.” At that time, the commission found that while DBS operators had made significant competitive advances and had the ability to enter into exclusive programming agreements with non-cable-owned networks, the cable-owned vertically-integrated program networks still had the ability and the incentive to favor their cable multiple system operator affiliates and impede the ability of alternative MVDPs to compete.

In considering the possibility of a further extension, the commission asks questions relating to the impact of the prohibition on the MVPD and programming markets, including whether competitive MVPDs’ access to “must have” or “marquee” programming, such as CNN, HBO, TNT or Discovery, remains essential to the successful implementation of competitive services. The FCC notes that although there have been significant industry developments since 2002—namely (1) the increase in the provision of MVPD service by ILECs, most notably Verizon and AT&T; (2) the acquisition of DirecTV by News Corp., which owns a number of satellite-delivered program networks through its subsidiary, Fox Entertainment; and (3) the acquisition by Comcast Corp. and Time Warner Cable of the assets of Adelphia Communications Corp.—questions remain as to how the changed marketplace should impact the decision to extend the prohibition or let it expire. The commission also asks what effect the prohibition on exclusive contracts has had on diversity in the distribution of video programming, i.e., ensuring that as many MVPDs as possible remain viable distributors of video programming, and how clustering, the development of regional programming, and continuing consolidation in the communications industry should affect the FCC’s decision on the sunset.

The NPRM does not specifically request comment on whether the scope of the exclusivity prohibition should be expanded (to terrestrially delivered programming or to Internet-based programming services, for example) or narrowed, although the issue undoubtedly will be addressed in comments. The DBS industry, ILECs and other alternative MVPDs are expected to assert that the prohibition on exclusivity should be retained and extended to include other types of programming, such as terrestrially delivered programming, that currently are not subject to the program access rules. Alternative MVPDs also may attempt to secure special rules applicable to sports programming networks—particularly regional sports networks—which the Commission has imposed as conditions in recent merger proceedings. The NPRM generally asks for comment “on any other issues appropriate to our inquiry.”

The NPRM also seeks comment on whether the current complaint process for resolving program access disputes is cost-effective and appropriate, or the complaint procedures should be modified. The rules now require a 10-day notice and waiting period before an MVPD may file a complaint with the commission, as well as a one-year statute of limitations period. The commission also has stated that it intends to resolve denial of access complaints within five months, and other types of complaints, e.g., price discrimination, within nine months. Alternative MVPDs are expected to file comments asking the FCC to streamline and expedite the complaint process, and again request broad discovery rights and the possible imposition of stiff penalties for rule violations (although the commission has denied such requests previously).

Comments are due to be filed 30 days after the NPRM is published in the Federal Register, and reply comments are due 15 days thereafter. We will be filing comments on behalf of some of our clients. Please let us know if you would like to participate in those comments or if you would like a copy of the rulemaking notice.