Jul 16, 2012

Time to Rethink Program Carriage Regulation

The government does not — and cannot — tell the Washington Post what columns to carry, or what sections of the paper to put them in, or what days of the week to run them. It doesn't tell Amazon what books to sell, or to recommend to its customers. It doesn't dictate what films Netflix licenses, or features. It doesn't specify which TV shows should be available on Hulu and which should be on Hulu Plus.

So, it's fair to ask: what role, if any, should the government play in determining which networks a cable operator carries, what tiers they should be placed on, what channel numbers they should be assigned, and how much cable operators (and their customers) should pay for those channels?

Twenty years ago, before the first DBS satellites (DirecTV and Dish) were launched, and before telephone companies (like AT&T and Verizon) were allowed to provide video, Congress passed a statute that gave the FCC a limited role in overseeing program carriage decisions of cable operators. The basic rules were simple: pay TV distributors can't demand equity or exclusivity in exchange for carriage, nor can they discriminate on the basis of ownership in a manner that unreasonably prevents an unaffiliated programmer from competing fairly. One of the keys to the limited oversight authorized by Congress was the prohibition of discriminatory treatment — not differential treatment.

These rules have been on the books for two decades, and cable companies comply with them. But in recent years there have been efforts to expand the government's role in overseeing our program carriage decisions. Our view is that the government's role should be shrinking, not expanding, in light of the robust competition that is now pervasive in the video marketplace. An expanded government role could adversely affect our ability to continue to provide our customers with an attractive array of video programming packages, tailored for different households' differing interests and budgets. And it would impermissibly expand the government's role beyond Congress's intent and infringe our First Amendment rights.

These concerns intensified late last year when an FCC administrative law judge ("ALJ") found in a preliminary decision that, as compared to our owned sports channels, Golf Channel and NBC Sports Network, we had discriminated against Tennis Channel, which we currently distribute in our Sports Entertainment package, consistent with our long-standing contract with the Tennis Channel. He made this finding in the face of uncontroverted evidence that we distribute the Tennis Channel better than most other large cable companies, and that all major multi-channel video distributors (including DirecTV and DISH, the Tennis Channel's two largest owners) carry Golf and NBC Sports Network more broadly than Tennis Channel. In short, the ALJ appears to have impermissibly conflated the concepts of discrimination and differential treatment. He effectively ordered that we move the Tennis Channel off the sports tier and put it on our Digital Starter line-up, and also required that we provide it with "equitable" channel placement vis-á-vis Golf Channel and NBC Sports Network.

We're hopeful that the newly reconstituted FCC will reject that decision. To rule otherwise would cause major increases in our costs, impede our efforts to keep consumer prices reasonable, and require tiering and channel changes that will cause disruption and confusion for consumers.

We're proud to offer our customers lots of choices — with multiple networks to watch within any given tier, but also with multiple optional tiers and premium channels for those who want them. Even after Comcast's acquisition of NBCUniversal, six of every seven channels we carry are unaffiliated. We believe we serve our customers best by carrying certain channels for which demand is limited in optional packages that are readily available at a modest additional cost.

Though undoubtedly well-intentioned, the ALJ's ruling was a breathtaking regulatory overreach. If endorsed by the full FCC, the ALJ's ruling would drive up costs for everyone, even though the appeal of Tennis Channel programming is limited. (Tennis fans who do not desire to purchase Tennis Channel's niche coverage of the sport already enjoy abundant coverage of every major tennis event on other channels.) The ALJ's ruling was the first time that anyone in government had ever ordered a cable company to carry a particular cable network on a particular tier. The full FCC has already acknowledged — as has the Tennis Channel — that this ruling was unprecedented.

There are a number of reasons why we believe this decision should be overturned. The ALJ's ruling (as well as a procedural ruling by the FCC's Media Bureau) was infected by severe factual and legal errors and ignored numerous marketplace realities.

As a matter of contract, Comcast carries the Tennis Channel precisely as it asked — and agreed — to be carried.

As a matter of fact, our carrying the Tennis Channel on the sports tier is not a product of affiliation-based discrimination but a prudent exercise of our contract rights. Other major multi-channel video distributors have made similar carriage decisions, and six of the top 20 largest video distributors refuse to carry Tennis Channel at all. And, while it's true that we distribute Golf Channel and NBC Sports Network to more customers than we do Tennis Channel, that's also true of virtually every major distributor in the marketplace, even including the satellite companies that hold major equity interests in Tennis Channel.

As a matter of law, the preliminary rulings violated FCC rules, the Communications Act, and the U.S. Constitution. Under FCC rules, the statute of limitations prevents Tennis Channel from bringing a claim based on carriage that it admits is consistent with a contract that is more than one year old. Under the program carriage statute, Tennis Channel cannot possibly prove that it is being unreasonably prevented from competing fairly when it is available to virtually all of Comcast's customers and is also available on the platforms of many other cable companies as well as DirecTV and Dish (both of which are substantial owners of the Tennis Channel). Nor does the statute allow for a finding of discrimination absent evidence of intentional affiliation-based bias; a violation that cannot be found where, as here, a distributor declined a network's proposal that would entail massive additional costs but no corresponding benefits. Under the U.S. Constitution, cable operators are entitled to freedom of speech and of the press and, just like a newspaper, bookstore, or website, cannot properly be told what content to carry or how it should be packaged.

As a matter of policy, there's no current justification for heavy-handed government regulation and second-guessing of the video marketplace, where competition is robust, marketplace negotiations work, and consumers have abundant choices. Nor is there any reason for government actions that reward regulatory gamesmanship — like enabling a so-called "independent" network backed by wealthy financiers (and Comcast's two biggest competitors) to raise consumer bills across America and then cash out with a valuation benefit of hundreds of millions of dollars created by inappropriate government intervention and built on the backs of consumers.

Late last year, President Obama received long, sustained, and bipartisan applause when he proclaimed in an address to a joint session of Congress that "We should have no more regulation than the health, safety and security of the American people require. Every rule should meet that common-sense test." Consistent with this message, leading legislators, like House Commerce Committee Chairman Upton and House Communications Subcommittee Chairman Walden, have strongly encouraged the FCC to eliminate unnecessary regulations and let the marketplace work.

The ALJ's ruling is simply out of step with these sentiments. With its unjustified finding of discrimination and intrusive and potentially costly remedy, it extended regulation where it has never gone before — and well beyond congressional intent. The Commission's forthcoming Tennis Channel ruling gives the agency a perfect opportunity to correct this error. And, if the agency heeds the procompetitive and deregulatory guidance provided by the President and by Congress, the next logical step would be to terminate the rulemaking that proposes to expand government regulation even further in this area and instead focus the agency's resources on eliminating outdated rules.

Tags : carriage agreements, FCC, Regulation, Tennis Channel

 
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