FCC Closes "Terrestrial Loophole" in Cable Program Access Rules
On Jan. 20, 2010, the Federal Communications Commission (FCC) amended its “program access” rules under Section 628 of the Communications Act to make “must have” programming, such as terrestrially delivered regional sports networks, more readily available to multichannel video competitors to traditional cable operators. The FCC did so by revising and extending its existing rules, which govern satellite-delivered cable-affiliated programming, so that they now cover cable-affiliated programming delivered terrestrially.
Until this order, the FCC had evinced a narrow interpretation of its authority in this area, hewing closely to the language of Section 628, and had regulated only contracts for satellite-distributed cable channels.
The new rules establish a case-by-case process for addressing complaints involving three categories of “unfair acts”: (i) exclusive contracts between cable operators and their owned or affiliated terrestrially delivered program networks; (ii) discriminatory prices, terms and conditions in sales of such programming; and (iii) cable operator attempts to unduly influence decisions by affiliated providers of terrestrially delivered programming whether to sell to competing multichannel video programming distributors (MVPDs).
The Commission established a rebuttable presumption that any of these “unfair acts” with respect to a regional sports network “significantly hinders or prevents” competitors from providing video programming to consumers, and thus violates the statute. In addition, the Commission declared that it will treat the high definition (HD) feed of a network as a different “must have” program source than the standard definition (SD) version of the same channel. Conversely, the Commission did not assign to local news programming any similar presumption, in an explicit effort to promote the development of more local news and diversity.
The program access rules adopted by the FCC in 1992 reflected Congress’ belief that cable’s control over program networks inhibited competition by direct broadcast satellite (DBS) and other new competitors. The rules sought to encourage entry into the MVPD market by making available to competitors cable-affiliated programming delivered via satellite, which was singled out by Section 628 as necessary for DBS providers and others to become competitively viable. Terrestrially delivered programming, such as that delivered by some regional sports networks, was not explicitly addressed by the statute or the rules, and the Commission, in several rulings during prior administrations, held that Congress’ silence on the subject meant that it did not have the authority under Section 628 to regulate the terrestrial distribution of such programming.
The Commission now claims authority for its new rules under Sections 628(b) and 628(c)(1), which the R&O characterizes as providing “broad authority to address th[e] ‘loophole’ by adopting additional regulations beyond” those governing satellite-delivered programming “to address unfair acts of cable operators.” Section 628(b) declares it “unlawful for a cable operator … to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming … to subscribers or consumers.” (Emphasis added.)
The Commission has been emboldened to rely upon this clause since a 2009 D.C. Circuit Court of Appeals’ decision upheld a similarly expansive Commission reading to ban exclusive agreements between cable operators and multiple-dwelling unit owners. (For more information on the court’s decision upholding the FCC’s decision to prohibit exclusive MDU contracts, see our advisory of May 29, 2009.)
A key distinction here, however, is that the Commission’s order makes the content-based judgment that regional sports networks are “must have” programming that is necessary for competitors, while local news and other community programming is not. As Chairman Julius Genachowski put it, consumers who want to switch video providers shouldn’t have to give up their favorite team in the process. They might, however, be required to change providers of local news, to promote diversity and localism in news sources.
The procedures for complaints involving terrestrially delivered programming vary in important ways from the existing process for claims involving satellite-derived cable programming. Complainants will continue to have the burden of proof, except as to the rebuttable presumption that any “unfair act” with respect to a regional sports network violates the statute. The time allowed for responses to a complaint involving terrestrial programming will be 45 days, instead of the 20-day response time for complaints involving satellite-delivered programming.
The Commission also established a procedure to consider petitions for requests for a temporary standstill of the price, terms and other conditions of an existing programming contract by a program access complainant seeking renewal of that contract. The standstill procedure can be invoked for both terrestrial- and satellite-delivered programming.
Parties who have complaints already pending at the Commission under the existing rules may choose either to continue to proceed under the existing rules, or file a supplement alleging that the cable programming entity has engaged in an “unfair act” after the effective date of the new rules (which will be 30 days after most of the rules appear in the Federal Register, or after Office of Management and Budget approval for provisions requiring such sign-off).
Significantly, the new requirement for terrestrially delivered networks is intended to be of unlimited duration. In contrast, Congress provided that the rule prohibiting exclusive contracts for satellite-delivered programming was to sunset after 10 years, i.e., in 2002, unless extended in effect by the FCC; the anti-exclusivity rule, twice extended by the FCC for five-year periods, is now scheduled to expire in 2012 unless again extended by the Commission.
Only Commissioner Robert McDowell dissented, opining that while he sympathized with the general policy objectives behind the new rules, in his view the order is not on “firm legal ground” because Section 628 was intended by Congress to reach only satellite-delivered programming. In light of Commissioner McDowell’s dissent on the Commission’s claim of statutory authority, as well as the content-based nature of the Commission’s presumptions as to regional sports and local news programming, we should expect challenges to the new rules in court.
Davis Wright Tremaine LLP has significant experience in the application of the laws governing cable network programming and competition among providers of video services. Please contact us if you would like further information.