FCC Asserts Broad MVPD Program Carriage Authority
July 24, 2012. The Federal Communications Commission (FCC) released a redacted copy [47 pages in PDF] of its Memorandum Opinion and Order (MOO) in the matter of the Tennis Channel's complaint against Comcast.
This MOO affirms the conclusion of an administrative law judge (ALJ) that Comcast violated the FCC's program carriage rules, and must provide equal carriage to Tennis Channel (TC).
The MOO discloses that the majority of the FCC Commissioners assert that the FCC has broad authority to make decisions for cable companies, and other multichannel video programming distributor (MVPD), regarding what programming to distribute, and at what tier to distribute them.
The applicable statute borrows terms from competition law. However, the majority concludes that the FCC, in enforcing this statute, is constrained neither by principles of competition law, nor reasoned economic analysis.
FCC Commissioners Robert McDowell and Ajit Pai wrote a lengthy joint dissent. The Commission divided on party lines, with Democrats Julius Genachowski, Mignon Clyburn, and Jessica Rosenworcel supporting the MOO, and Republicans McDowell and Pai dissenting.
Also, 34 mostly Republican Representatives sent a letter to the FCC criticizing the MOO. See, related story in this issue titled "Representatives Write FCC Regarding Program Carriage".
The FCC adopted this MOO on July 16, but did not release it to the public until July 24, 2012. This MOO is FCC 12-78 in MB Docket No. 10-204 and File No. CSR-8258-P.
Tennis Channel Complaint. Tennis Channel (TC), which is not affiliated with Comcast, filed a complaint with the FCC against Comcast on July 5, 2010. Comcast owns an equity interest in sports networks, including Golf Channel and Versus (which is now NBC Sports Network).
TC alleged that Comcast carries TC on a tier with lower penetration that is only available to subscribers who pay an additional fee, while Comcast carries its own similarly situated affiliated networks Golf Channel and Versus on a tier with higher penetration that is available to subscribers at no additional charge.
And this, TC alleged, violates the program carriage provisions in the 1992 Cable Act and the FCC's rules thereunder.
An FCC administrative law judge (ALJ) found that Comcast violated the FCC program carriage rules, and ordered Comcast to pay a forfeiture of $375,000. The ALJ also ordered Comcast to carry TC at the same level of distribution as Golf Channel and Versus.
Comcast sought review of the ALJ order by the full Commission.
1992 Cable Act. In 1992 the Congress enacted the "Cable Television Consumer Protection and Competition Act of 1992", Public Law No. 102-385. It directs the FCC to write program carriage rules. The FCC first enacted program carriage rules in 1993.
47 U.S.C. § 536, which was enacted as part of the 1992 Act, provides, among other things, that the FCC shall write rules that are designed to prevent a multichannel video programming distributor (MVPD), which includes cable companies, from "engaging in conduct the effect of which is to unreasonably restrain the ability of an unaffiliated video programming vendor to compete fairly".
Section 536 is also know as Section 616 Communications Act.
FCC MOO. A divided full Commission affirmed most of the order of the ALJ.
The MOO concludes that TC "has demonstrated that Comcast discriminated against Tennis Channel and in favor of Golf Channel and Versus on the basis of affiliation, and that this discrimination unreasonably restrained Tennis Channel’s ability to compete in violation of Section 616 of the Communications Act and Section 76.1301(c) of the Commission's rules."
Also, while the MOO affirms the equal carriage remedy, the MOO does not order equitable channel placement.
This MOO states that in enacting the program carriage provisions in the 1992 Act, the "Congress did not incorporate standards borrowed from the distinct antitrust doctrine of essential facilities", and "Section 616 would serve no function if it existed simply as a redundant analogue to antitrust law".
Rather, it "was designed to address specific concerns about vertical integration in the video distribution market". The MOO states that the statute is structured to prohibit discrimination on the basis of affiliation when such discrimination has the effect of unreasonably restraining the ability of an unaffiliated programming vendor to compete fairly.
In the present matter, the MOO concludes that Comcast discriminated against TC on the basis of nonaffiliation and discriminated in favor of Golf Channel and Versus on the basis of affiliation, and that this unreasonably restrained the ability of TC to compete fairly.
In its analysis of competition, the MOO states that "An MVPD that discriminates against a video programming vendor by limiting the vendor's access to nearly a fourth of the entire market and to a significant percentage of subscribers in major regional markets, while by giving similarly situated affiliated competitor networks broad access is clearly restraining the vendor's ability to compete."
Dissent. FCC Commissioners McDowell and Pai wrote that the majority's "analysis founders on this simple fact: Comcast's treatment of Tennis Channel was within the industry mainstream. 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."
That is, the MOO orders, not non-discriminatory treatment, but preferential treatment.
They also argued that the MOO fails on competition analysis. "If consumers demand Tennis Channel as much as the Golf Channel and Versus but Comcast discriminates against it, Comcast's competitors have a golden opportunity to lure Comcast's customers away by distributing Tennis Channel as widely as (if not more widely than) the other two networks. That not a single major MVPD chose this course of action in 2010 is telling -- not one company apparently thought that the marketplace demanded Tennis Channel as much as the Golf Channel and Versus." (Parentheses in original. Footnote omitted.)
Finally, the two wrote that "the broader impact of today's decision on consumers. If the Commission merely ordered Comcast to carry Tennis Channel on the same tier as Golf Channel and Versus, that alone would make Comcast an industry outlier. But to add insult to injury, the Commission also effectively obligates Comcast to pay Tennis Channel for this privilege. As a result, in order to shield themselves from discrimination complaints, Comcast and other MVPDs will be more likely to carry networks they do not want, on tiers with broader penetration, and at higher prices than ever before -- at least if they are foolish enough to be willing to invest in content creation. And the Commission should not kid itself. These additional programming costs will come out of the pockets of consumers, not from MVPDs' bottom lines."
Reaction. The National Cable and Telecommunications Association (NCTA) wrote in a statement that this "regrettable decision takes us down a dangerous and unnecessary regulatory path. For the first time, the full Commission has intervened to rewrite a private, arms-length contract and dictate the terms and conditions of carriage for a particular programming network."
The NCTA continued that "The carriage agreement at issue gave Comcast the right to carry the Tennis Channel on a separate sports tier to provide its customers with additional choice of video programming packages. The government has now abrogated that contract, midterm, by finding that Comcast ``discriminated´´ against the Tennis Channel by not carrying it on a more widely purchased tier that carries two Comcast-affiliated channels that also happen to carry sports programming."
It concluded that "Forcing a cable operator not only to carry a particular
program network but to include it in a particular tier or package of channels
directly interferes with the operator’s Constitutionally protected right to
select and package programming in the manner that, in its editorial discretion,
best meets the interests and demands of its customers. In today’s highly
competitive marketplace, it is difficult to see how the government can justify
this content-based trampling on the right of free speech and the freedom of