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The Perils of Program Carriage

Wednesday, March 14, 2012
Ashok Chandra | Bloomberg Law In the 20 years since the Federal Communications Commission ("FCC") implemented rules intended to prevent cable operators from discriminating in carriage agreements between affiliated and non-affiliated networks, numerous issues have arisen requiring the FCC to recently revisit and reassess these rules. The "program carriage" rules prevent cable operators from unreasonably restraining the ability of an unaffiliated provider of programming to compete. In creating the legislation underlying these rules, Congress sought to prevent companies like Comcast, which own several channels such as CNBC, Bravo and Oxygen, from creating terms so unfair that providers of similar programming would not be able to get their programs on the air. The program carriage rules prohibit these vertically integrated companies from discriminating against non-affiliated networks. Under the program carriage rules, a cable operator may be compelled to carry programming that it would not otherwise carry, and independent programmers have the right to request cable and satellite operators to engage in negotiations for carriage. In these negotiations, cable and satellite operators cannot demand to have a share in the independent programmers. While these rules have helped to ensure that a diversity of programming has made it onto televisions for the nearly the past two decades, a number of disputes have arisen in recent years leading to a recent Notice of Proposed Rulemaking ("NPRM") that the FCC released for comment last year. The NPRM seeks to find a solution that would streamline the complaint process while at the same time protecting the consumer from higher trickle down costs. As FCC Commissioner Michael Copps has noted, "Modernizing these rules is essential to ensure that consumers have the ability to view a variety of diverse programming at the lowest possible cost and hopefully to foster more independent production."1

Need for Program Carriage Rules

In 1984, Congress amended the Communications Act of 1934 by adopting the Cable Communications Policy Act of 1984. The Act established policies in the "areas of ownership, channel usage, franchise provisions and renewals, subscriber rates and privacy, obscenity and lockboxes, unauthorized reception of services, equal employment opportunity, and pole attachments."2 As the number of households that subscribed to cable grew, so did the number of channels. However, competition among cable operators did not increase, but the price for a subscription did.3 In response, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992, which made changes in the way in which cable television was regulated. The stated intentions of the 1992 Act were "to ensure cable operators continue to expand their capacity and program offerings, to ensure cable operators do not have undue market power, and to ensure consumer interests are protected in the receipt of cable service."4 In passing the 1992 Act, Congress expressed concern that as cable operators became more vertically integrated, programming vendors would be harmed because cable providers would be incentivized to use their affiliated programming.5 This harm could result in reduced competition and a lack of diversity in programming. Further, Congress directed the FCC to "establish regulations governing program carriage agreements and related practices between cable operators or other [MVPDs] and video programming vendors."6 In 1993, the FCC implemented a provision of the 1992 Act intended to benefit consumers by "promoting competition and diversity in the video programming and video distribution markets."7 Video programming vendors could file complaints with the FCC alleging that an MVPD has:
  1. required a financial interest in a video programming vendor's program service as a condition for carriage;8
  2. coerced a video programming vendor to provide, or retaliated against a vendor for failing to provide, exclusive rights as a condition of carriage;9 or
  3. unreasonably restrained the ability of an unaffiliated video programming vendor to compete fairly, by discriminating in video programming distribution on the basis of affiliation or nonaffiliation of vendors in the selection, terms, or conditions for carriage.10
A network is deemed to be affiliated with a cable company if the cable company owns a five percent or greater share of the network.11 Congress directed the FCC to grant these complaints an "expedited review" and to provide remedies and penalties for these violations.12 The complaint, answer and reply would first be reviewed by a staff member to ensure that a prima facie case was established.13 If the burden is met, and the claimant alleges successfully that the network's behavior violated the FCC's regulations, the parties can be referred to alternative dispute resolution or submit factual disputes to an administrative law judge ("ALJ").14 The ALJ's decision is appealable to the FCC. If the FCC Media Bureau finds a violation of the program carriage rules, the relief is be determined on a case-by-case basis, but can include "forfeitures, mandatory carriage, or carriage on terms revised or specified by the Commission."15 One of the most blatant shortcomings with the present rules is that the FCC declined to define with specificity the type of behaviors that are prohibited by the rules. Thus, questionable conduct cannot be deemed discriminatory until after a prima facie determination by the FCC has been made. Under the existing rules, program vendors have complained that the FCC's procedure for dealing with program carriage disputes have disincentivized the filing of legitimate complaints and unreasonably favor vertically integrated cable operators. Disputes between non-affiliated vendors and cable operators have arisen in areas of neighborhooding (placement of similar channels), placement of certain programs in premium tier channels, and carriage of regional sports. The FCC determined that its current procedures were ineffective. In 2007, the FCC requested comment on the program carriage rules and procedures and how the process for resolving claims could be made more efficient. Of particular concern to program vendors were the delays in the action the FCC took in addressing complaints and fear of retaliation.

First Complaint

The first complaint made under the FCC's program carriage rules was made by Classic Sports Network against Cablevision.16 Classic, which broadcast archived sporting events, complained that Cablevision, a cable operator, used coercive tactics to attempt to obtain an ownership stake in the network as a condition of carriage. Without discussing the substance of the complaint, the Cable Services Bureau of the FCC determined that the complaint established a prima facie case and it ordered the parties to resolve their dispute out of court or to submit to an ALJ. The dispute was eventually settled out of court.17 In another case, TCS Sports Broadcasting Holding v. Comcast, TCR, a regional sports network ("RSN") affiliated with the Baltimore Orioles and the Washington Nationals baseball franchises, began broadcasting Nationals games in 2006 and Orioles games in 2007.18 Comcast, which previously had the exclusive rights to carry the Orioles games until 2006 refused to carry TCR and it brought an action in state court asserting that the Orioles violated their existing agreement, which gave Comcast the right of first refusal for Orioles games.19 TCR filed a complaint with the FCC pursuant to the coercion and discrimination regulations and requested the FCC to compel Comcast to carry the network until terms had been reached.20 TCR additionally asserted a violation pursuant to the 1992 Act, because Comcast continued to carry its own RSN and refused to carry TCR in retaliation TCR's broadcast rights for the Nationals.21 TCR asserted that it would not be able to achieve its baseline level of subscribership without carriage by Comcast. Comcast rebutted by stating that its refusal to carry arose out of a TCR's contractual violation, a possibility that carriage would displace existing programming and the type of programming that would otherwise be carried on the network. The FCC determined that TCR stated a prima facie case and the FCC determined that TCR's claim that it would be unable to achieve "long-term financial viability" without Carriage by Comcast met the standard prohibited by 47 C.F.R. § 76.1301(c), which prohibits the discrimination, "the effect of which is to unreasonably restraint the ability of an unaffiliated video programming vendor to compete fairly." The FCC directed the parties to resolve their dispute or to submit to an ALJ. The parties reached an agreement a week later, but, as a result of the agreement, rates went up $2 per subscriber.22

Neighborhooding

The highest profile disputes to date with regard to program carriage concern the placement of networks on tiers and in relation to other networks. In the most high profile case to date, the NFL Network filed a complaint against Comcast asserting that Comcast intentionally placed it on a premium channel that receives fewer subscribers than basic cable. NFL asserted that Comcast discriminated against it by agreeing to carriage only on a premium channel, its Sports Entertainment Package.23 The FCC determined that the NFL Network established a prima facie case that Comcast discriminated against NFL and that in exchange for carriage, Comcast would receive a financial stake. NFL asserted that because Comcast did not charge extra for its own sports networks, Versus and the Golf Channel, it was unfair for Comcast to charge more for the NFL Network. In its defense, Comcast argued that consumers may have to pay more for basic cable for a channel many consumers would not want if it included the NFL Network in basic cable. The FCC found in favor of the NFL Network and found that the NFL "has presented sufficient evidence to make a prima facie showing that Comcast indirectly and improperly demanded a financial interest in the NFL's programming in exchange for carriage."24 The FCC directed the case to an ALJ and directed a decision within 60 days. The trial before the ALJ began on April 14, 2009, and the two parties settled the dispute on May 19, 2009, agreeing to a nine-year deal where the network would be placed on Comcast's second most popular channel tier.25 In a similar case, the Tennis Channel asserted that Comcast was obliged to place the network in the same "neighborhood" of networks as two of its own networks, Golf Channel and Versus. The FCC determined that the Tennis Channel made a prima facie case and, in referring the case to an ALJ, suggested that the ALJ sanction Comcast for not placing the Tennis Channel in the same neighborhood. On December 20, 2011, the ALJ agreed and found that Comcast treated the Tennis Channel unfairly by placing it on a premium channel as opposed to Comcast's two affiliated networks.26 The ALJ found that Comcast must pay the full $375,000 fine and no longer discriminate against the Tennis Channel. 27 The judge wrote that Comcast's action "has depressed the number of Tennis Channel's subscribers, diminished the amount of its license fees, reduced its ability to procure valuable programming rights and made it more difficult for Tennis Channel to sell advertising." Recently, Bloomberg LP filed a complaint with the FCC against Comcast for neighborhooding. Bloomberg asserted that, according to the FCC's merger conditions between Comcast and NBC, Comcast must move Bloomberg TV nearer in channel position to its main rival, CNBC.28 As a condition of Comcast's merger, the FCC indicated "If Comcast now or in the future carries news and/or business news channels in a neighborhood, defined as placing a significant number or percentage of news and/or business news channels substantially adjacent to one another in a system's channel lineup, Comcast must carry all independent news and business news channels in that neighborhood."29 The case is still pending, but the Tennis Channel decision may weight in Bloomberg's favor.30

Notice of Proposed Rulemaking

On August 1, 2011, the FCC released an NPRM suggesting revisions to the program carriage rules.31 The FCC sought to streamline the complaint process with regard to complaints it receives from independent programmers. The new rules would speed complaint resolution, adopt an arbitration system for impasses, implement procedures of renewals, and compensatory damages for noncarriage. The FCC proposed several procedures in its Second Report and Order32 to expedite program carriage complaints. The proposals include:
  • Codifying in the rules what a program carriage complainant must demonstrate in its complaint to establish a prima facie case of a program carriage violation;
  • Providing the defendant with 60 days (rather than the current 30 days) to file an answer to a program carriage complaint;
  • Establishing deadlines for action by the Media Bureau and ALJs when acting on program carriage complaints; and
  • Establishing procedures for the Media Bureau's consideration of requests for a temporary standstill of the price, terms, and other conditions of an existing programming contract by a program carriage complainant seeking renewal of such a contract.33
The FCC seeks comment on several proposed modifications and clarifications to the program carriage rules. First, the FCC seeks comment on whether it should: improve its existing procedures by modifying the program carriage statute of limitations to provide that a complaint must be filed within a year of the violation; permit an award of damages in program carriage cases; implement a system where parties can submit their "final offer" with regard to "rates, terms, and conditions;" place the burden on the MVPD to show that a mandatory carriage remedy would result in the deletion of other programming; adopt a rule that requires vertically integrated MVPDs to negotiate in good faith with unaffiliated program vendors with respect to similarly situated video programming to an MVPD's video programming; and codifying in the rules which party bears the burden of proof in program carriage discrimination cases.34 — Prima Face Case In the 1993 Order, the FCC stated that a "complaint must be supported by documentary evidence of the alleged violation, or by an affidavit . . . setting forth the complaint's allegations."35 The FCC noted that the complaint must be based in fact and could not be based merely on conjecture. Because of the uncertainty in the language, some vendors were unsure as to what constitutes a prima facie case. Some commenters have urged the FCC to do away with this requirement completely while others request a concise definition. The FCC proposes that all complaints must contain evidence that complainant is a video programming vendor and the defendant is an MVPD. Complaints alleging a violation of the exclusivity or financial provisions must contain either documentary or testimonial evidence supporting the underlying facts. For complaints alleging discrimination, direct evidence is required showing that the MVPD discriminated on the basis of either affiliation or non-affiliation. Such evidence may include an e-mail or from the MVPD indicating that the MVPD took an adverse carriage action because the vendor was unaffiliated with the MVPD or in the absence of this evidence, alternate evidence supporting such a claim. Additionally, the vendor may provide evidence that the MVPD provides programming that is similarly situated based on genre, ratings, fees, target advertising, etc. Additionally, the complaint must contain evidence that the defendant has treated the video programming differently than other similarly situated programming provided by an affiliated vendor. — Deadline for Defendant to Answer a Program Carriage Complaint Under the current system, an MVPD must answer a complaint within 30 days of service.36 The FCC proposes amending this rule to give an MVPD 60 days to answer a program carriage complaint. The FCC noted that under its revised regime, by requiring the complainant to provide specific supporting evidence and by providing the defendant to additional time to respond, there will be a "a more robust factual record."37 The FCC posited that this would give the media bureau a better opportunity to resolve cases without referring the case to the ALJ. — Deadlines for Media Bureau and ALJ Decisions One of the biggest complaints about the existing rules is the unpredictable and often lengthy time frames for FCC action on program carriage complaints. The FCC noted that actions in program carriage complaints typically include a first step of a prima facie determination by the Media Bureau. followed by a decision on the merits by either the Media Bureau or an ALJ. Under the new proposed regime, the Media Bureau must release a decision with regard to whether the complainant has established a prima facie case within 60 days after the complainant files a reply. The FCC noted that in a reply, the complainant must not raise any new issues. With regard to the second step, the FCC noted that after the Media Bureau makes a determination that complainant has stated a prima facie case, it may take one of three steps to resolve the dispute. First, the Media Bureau may rule on the merits of the complaint based on the pleadings without discovery, if there is sufficient evidence.38 For the second option, if the Media Bureau determines that the record is not sufficient to resolve the complaint, it may outline procedures for discovery, without ruling on the merits of the complaint. Lastly, if there are factual issues or other extensive discovery necessary, the Bureau may refer the proceeding or certain issues therein for an adjudicatory hearing.39 For complaints where the Media Bureau decides on the merits after discovery is conducted, it must release a decision within 150 days of the prima facie determination. If the third option is necessary, the ALJ must release a decision within 240 calendar days after one of the parties informs the Chief ALJ that they have failed to resolve their dispute through alternate means. The FCC noted that it expected that 240 days was an adequate time frame for an ALJ to act. — Temporary Standstill of Existing Contract Pending Resolution of a Program Carriage Complaint The FCC noted that absent a standstill in price, terms, and other conditions of an existing programming contract, an MVPD would have the ability to retaliate against a programming vendor that files a complaint by terminating carriage of the vendor's programming. Further, the FCC noted that without a standstill, a vendor may be inclined to bend to a programmer's demands. The NPRM established mechanism for complainants to seek temporary standstills. At least 30 days prior to the expiration of an existing contract, a complainant must demonstrate that: (i) it is likely to prevail on the merits; (ii) it will suffer irreparable harm absent a stay; (iii) grant of a stay will not substantially harm other interested parties; and (iv) the public interest favors grant of a stay. The Commission found that, absent a "standstill order," an order requiring an MVPD to continue carrying programming during a dispute, an MVPD can cease to carry a programmer's product in retaliation for the filing of a complaint.

Reaction to Proposed Rules

The recommendations were met a mixed reactions. Former FCC Commissioner and current National Cable and Television Association President Michael Powell stated that the proposed rules were "a flawed process that the FCC stubbornly refused to correct, substantive policy discussions that show little regard for the limits of agency authority or constitutional rights, and a disturbing lack of appreciation of the potential impact of government intervention on consumers or the marketplace."40 On the other side, the Media Access Project director, Andrew Schwartzman stated that the new rules would "promote diversity in cable TV offerings by insuring that independent cable channels have a shot at getting carriage on large cable systems."41 Some companies have advised that the FCC should simply remove the ALJ from the equation entirely and instead give the Media Bureau the ability to conduct sufficient discovery and to resolve complaints without outside interference. Proponents of this solution argue that the Media Bureau "is in the best position to determine the information it needs to resolve disputes, and such a process would eliminate the inevitable discovery disputes, and attendant delays that would result if party-to-party discovery and numerical limits on discovery are adopted."42 Although the rules have not been finalized, it is certain that the debate and discussion will help to further point out the existing flaws in the current program carriage rules.
1 STATEMENT OFCOMMISSIONER MICHAEL J. COPPS, Re: Leased Commercial Access; Development of Competition and Diversity in Video Programming Distribution and Carriage; Revision of the Commission’s Program Carriage Rules, Second Report and Order in MB Docket No. 07-42 and Notice of Proposed Rulemaking in MB Docket No. 11-131, Aug. 1, 2011, http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-11-119A2.pdf2http://transition.fcc.gov/mb/facts/csgen.html3 Id. 4 Id. 5 See 1992 Cable Act § 2(a)(5) ("The cable industry has become vertically integrated; cable operators and cable programmers often have common ownership. As a result, cable operators have the incentive and ability to favor their affiliated programmers. This could make it more difficult for noncable-affiliated programmers to secure carriage on cable systems."). 6 47 U.S.C. § 536. A "video programming vendor" is defined as "a person engaged in the production, creation, or wholesale distribution of video programming for sale." 47 U.S.C. § 536(b). 7 See Implementation of Sections 12 and 19 of the Cable Television Consumer Protection and Competition Act of 1992, Development of Competition and Diversity in Video Programming Distribution and Carriage, MM Docket No. 92-265, Second Report and Order, 9 FCC Rcd 2642 (1993) ("1993 Program Carriage Order"); see also Implementation of the Cable Television Consumer Protection And Competition Act of 1992, Development of Competition and Diversity in Video Programming Distribution and Carriage, MM Docket No. 92-265, Memorandum Opinion and Order, 9 FCC Rcd 4415 (1994) ("1994 Program Carriage Order"). The Commission’s program carriage rules are set forth at 47 C.F.R. §§ 76.1300 - 76.1302. 8 See 47 C.F.R. § 76.1301(a); see also 47 U.S.C. § 536(a)(1). 9 See 47 C.F.R. § 76.1301(b); see also 47 U.S.C. § 536(a)(2). 10 See 47 C.F.R. § 76.1301(c); see also 47 U.S.C. § 536(a)(3). 11 1993 Program Carriage Order,

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