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Three federal appeals court judges appear poised to overturn a Federal Communications Commission decision requiring Comcast Cable Communications LLC to place the Tennis Channel in the same service tier as the company's own sports channels, in a ruling that could have broad implications for the entire media industry.
During oral argument before the U.S. Court of Appeals for the District of Columbia Circuit Feb. 25, the three-judge panel peppered FCC counsel with harshly skeptical questions, suggesting the court may strike down the decision or remand the case to the agency for further review and processing (Comcast Cable Communications LLC v. Federal Communications Commission, D.C. Cir., No. 12-1337, 2/25/2013).
The FCC, in the 3-2, party-line decision, voted in July 2012 to force Comcast to carry the Tennis Channel exactly the same way as Comcast's NBC Sports Network and Golf Channel. Since 2005, the Tennis Channel has been available to Comcast's customers on Comcast's premium “Sports and Entertainment Package” tier, which costs $5 to $8 more a month than basic service. Golf Channel and the NBC Sports Network, meanwhile, are offered on Comcast's “Digital Starter” and “Expanded Basic” tiers, which are less expensive and have a much wider reach.
The decision marked the first ever by the FCC under section 616 of the Communications Act, which permits the agency to enact regulations “governing program carriage agreements” between cable operators and programmers. Such regulations, the statute states, must “contain provisions designed to prevent” companies like Comcast from “engaging in conduct the effect of which is to unreasonably restrain the ability of an unaffiliated video programming vendor to compete fairly by discriminating in video programming distribution on the basis of affiliation or non-affiliation of vendors in the selection, terms, or conditions for carriage of video programming provided by such vendors.”
In siding with Tennis Channel, the FCC majority largely upheld a December 2011 decision by agency Administrative Law Judge Richard L. Sippel, who concluded that the “undisputed record evidence establishes that Comcast gives more favorable channel placement” to its networks.
But at the hearing, all three D.C. Circuit judges raised sharp questions about whether Tennis Channel's complaint to the FCC was time-barred and whether the agency infringed upon Comcast's free-speech rights.
The most outspoken judge on the panel was Harry T. Edwards, who began his questioning of FCC lawyer Peter Karanjia by saying the case was essentially “moot.”
His main contention was that Tennis Channel entered into a carriage deal with Comcast in 2005, and FCC rules set forth a one-year statute of limitations on changes in contracts.
The company, Edwards said, cannot come to the commission “eight, ten years later and say 'now we hate the contract.’”
“Comcast has rights under the contract,” Edwards said. Otherwise, he added, a contract becomes “silly.”
“If you are essentially upset about the contract, too bad,” he said.
The FCC's Karanjia argued in response that Tennis Channel's complaint does not allege that the 2005 contract was discriminatory, but that Comcast's refusal in June 2009 to “exercise its discretion” under the existing contract to relocate Tennis Channel to a more widely distributed tier was improper under the Communications Act.
Since the 2005 contract was signed, the Tennis Channel has grown in popularity and influence among sports fans. The company most notably won the rights to televise the U.S. Open and now delivers programming in HD (high definition).
These changes now warrant broader exposure to Comcast's subscribers, said Covington and Burling partner Robert Long Jr., arguing for the Tennis Channel at the hearing.
To Long, the one-year statute of limitations could create a “huge loophole” for companies like Comcast.
But Edwards said Tennis Channel should have negotiated for language in the 2005 contract to guarantee more favorable placement in the future.
“There is nothing Tennis Channel couldn't have anticipated writing that contract,” Edwards said. “…What business goes into business hoping not to get better?
Unlike Edwards, Judge Brett M. Kavanaugh focused his questions on the FCC's statutory and constitutional arguments.
He said that in the Communications Act, there was a “congressional presumption” that vertical integration--Comcast being both a distributor and a producer of programming content--is “pro-competitive” unless there is “market power.”
The FCC's Karanjia admitted that the FCC made no market-power finding before rendering its decision, but instead “came close.”
He pointed to a partly redacted section in the FCC order that states that Comcast has the potential to exert bottleneck control over the national advertising market.
Kavanaugh quickly responded that the FCC had not ruled for Tennis Channel based on that theory, and that such an argument “doesn't get [the agency] far here.”
Later, during closing remarks, Karanjia asked the court, if it opts to overturn the decision, to give the FCC a second chance to show that Comcast has market power.
“There is enough evidence in the record to show market power,” Karanjia said.
Turning to First Amendment issues, Miguel Estrada, arguing for Comcast, called the FCC's decision “one of the most outrageous invasions of the First Amendment since the Sedition Act.”
“I, as Comcast, am entitled under the First Amendment to like my speech better than yours,” said Estrada, the co-chair of Gibson, Dunn and Crutcher's appellate and constitutional law practice
Estrada also refuted Tennis Channel's allegations of discrimination, noting that Comcast currently carries a number of “non-affiliated” programming channels on broader service tiers, such as ESPN, because of their “market appeal.”
To further bolster his argument, Estrada posed a hypothetical analogy in which federal regulators censured The New York Times for failing to publish stories written by a freelance writer whose stories normally run “next to the used car ads.” To Comcast, the Tennis Channel does not deserve the front page, Estrada said.
The D.C. Circuit will likely rule on Comcast's appeal sometime over the next several months.
As part of the FCC decision, the agency had fined Comcast $375,000, and required the company to carry the Tennis Channel at the same level of distribution as Golf Channel and NBC Sports Network, but the D.C. Circuit court last August agreed to stay the decision pending the outcome of the appeal.
Bloomberg LP, the parent company of Bloomberg BNA, filed a “friend of court brief” supporting the FCC's decision. Bloomberg in June 2011 filed a similar complaint against Comcast, alleging that the company failed to fulfill a condition of its merger with NBC Universal to place news or business channels in the same “neighborhood” of its channel lineup.
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