Jul 24, 2012

Tennis Channel: Game, Set, and Match: Consumers Lose

We are disappointed in today's FCC decision in the litigation brought by Tennis Channel. Today's decision represents a dramatic regulatory overreach that cannot be justified given the narrowly tailored statutory directive of Congress.

As recognized by Commissioners McDowell and Pai in their powerful dissent, the finding here of improper discrimination is inconsistent with crucial evidence. It is precisely the type of excessive regulation that the President has decried. It is an archetypical example of unjustifiable governmental micromanagement, which House Energy and Commerce Chairman Upton and House Subcommittee Chairman Walden have consistently targeted in their efforts to reform the FCC's regulatory process. And it flies in the face of a bipartisan letter signed by 34 members of Congress this week that cautioned the Commission about its recently proposed expansion of the program carriage rules.

The majority's ruling misapplies the statutory standards for discrimination and competitive harm, ignores evidence demonstrating that Comcast's business decision with respect to Tennis Channel was based on unbiased cost-benefit analyses (and not discrimination), violates the statute of limitations governing Tennis Channel's complaint, and tramples on Comcast's First Amendment rights.

The program carriage law was designed to protect programmers from being shut out because of a provider's discriminatory preference for carriage of its own network. Program carriage does not prohibit differential treatment of affiliated and unaffiliated programming — it only prohibits treatment that discriminates on the basis of affiliation. This case simply does not implicate the statutory discrimination standard. For one thing, this case is not about ensuring that Comcast carries the Tennis Channel — because in fact Comcast already carries it. For another, this case is not about discrimination by Comcast — because in fact Comcast has not treated the Tennis Channel poorly in favor of Comcast's affiliated sports channels.

The essential proof of that is that Comcast has carried the Tennis Channel in the same manner or better than many other multi-channel video distributors (in fact, six of the 20 largest distributors do not carry Tennis Channel at all). As the dissenting Commissioners recognized, "In 2010, the year in which Tennis Channel filed its complaint, every major MVPD in the United States distributed both Golf Channel and Versus to more subscribers than Tennis Channel. Or, to put it another way, not a single major MVPD found Tennis Channel to be 'similarly situated' to Golf Channel and Versus when making carriage decisions."

Ironically, today's decision effectively compels Comcast to carry the Tennis Channel more broadly than the way it is carried by its two satellite owners (DirecTV and DISH), a result that is simply impossible to square with the language or intent of the program carriage statute or rules.

Even in 1992, when the cable industry controlled 98% of the multichannel video marketplace, Congress drafted the program carriage statute to require a concrete showing that discrimination against a programmer because of its affiliation or non-affiliation with a video distributor severely and unreasonably handicapped the programmer's ability to compete. But today's decision reads the relevant limitations out of the law entirely. And that significant overreach takes place against the backdrop of a dramatically different video marketplace. Cable's market share is now below 56%; fierce competition among facilities-based providers and online video distributors is an undeniable reality; the number of program networks has exploded; and the percentage of cable-affiliated programming has dramatically declined. In this dynamic and competitive marketplace, regulatory intervention should be sparing and careful. This decision strikes precisely the opposite note.

The Tennis Channel also has not suffered unreasonable restraint on its ability to compete. To the contrary, the result of this decision is to unfairly expand Tennis Channel's distribution beyond what it negotiated with Comcast. That result addresses no consumer need and rights no competitive harm. It does not improve consumer welfare.

The decision will produce only two developments of any import: it will enrich Tennis Channel's wealthy investors (including two of Comcast's major competitors — DirecTV and DISH). Indeed, the Tennis investors reportedly plan to put the Tennis Channel promptly on the sales block. More importantly, over the next 10 years, Comcast's programming costs will increase by hundreds of millions of dollars — putting upward pressure on cable prices — just so that consumers can watch programming that is already available to those viewers who actually want to see it.

Moreover, to allow Tennis Channel to pursue its claim, the Commission had to ignore its own statute of limitations rules, which would have properly precluded the Tennis Channel from bringing a complaint about a contract it signed more than seven years ago. The Commission overrode this restriction based on a theory that would gut the whole purpose of the limitations statute. There was no reason for that fundamental departure from the procedural rules that respect the sanctity of contracts and protect the integrity of the Commission's processes and the parties participating in them.

Finally, the decision here runs roughshod over Comcast's and other video distributors' First Amendment freedoms of speech and press. Congress limited the reach of the program carriage statute, undoubtedly aware that it was encroaching on cable providers' protected editorial discretion — a step that should be taken only where there is a compelling justification and even then, done only to the degree necessary. But here, the Commission majority substituted its judgment for Comcast's, dictating the tier on which Tennis should be offered to customers. That intrusion into a cable operator's editorial discretion is an unjustified affront to the First Amendment with no legitimate public interest justification.

While we have the utmost respect for the Commission and its work, and we appreciate the way in which the remedy part of the decision has been improved from what the ALJ recommended, we are left with no choice but to pursue all available legal remedies in the courts.

Tags : FCC, Tennis Channel

 
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