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FCC Releases Text of Program Access “Exclusivity” Order and “Tying” Rulemaking Notice; Solicits Comment on Additional Proposals for Expanding Scope of Program Access Rules

 

October 2, 2007

            As previously reported, on September 11, 2007, the FCC decided to extend for five years the portion of the “program access” rules prohibiting satellite-delivered, vertically integrated cable networks from entering into exclusive affiliation agreements and made certain other changes to the procedural rules applicable to program access complaints (see our “Memorandum to Clients” dated September 12, 2007).  In addition, the FCC announced that it was going to commence a new rulemaking proceeding to consider further substantive and procedural changes to the program access rules, such as closing the so-called “terrestrial loophole” and barring broadcasters and cable programmers from “tying” two networks (i.e., forcing an MVPD to agree to carry one network in order to obtain the right to carry another network or broadcast station).  The FCC has now released the text of its decision and rulemaking notice (“Program Access Order”), which we summarize below.

I.          PROGRAM ACCESS ORDER

            Extension of the Prohibition on Exclusive Carriage Agreements.   As part of the 1992 Cable Act, Congress prohibited cable operators from entering into exclusive distribution agreements with satellite-delivered programming networks in which a cable operator has an attributable interest.  However, Congress provided that this provision would sunset after ten years, unless the FCC found that an extension was “necessary” to preserve and protect competition and program diversity.  In 2001, the FCC considered the state of the video marketplace and concluded that the prohibition on exclusive agreements should be retained for at least another five years.  In its Program Access Order, the FCC concluded that, notwithstanding evidence that competition in the video marketplace was continuing to grow, the exclusivity provision remained “necessary” and thus extended the prohibition for another five years (although, as discussed below, the FCC also is asking for comment on whether and under what circumstances the prohibition might be allowed to expire sooner).  In adopting this extension, the FCC expressly rejected suggestions that it limit the prohibition’s applicability to certain categories of programming or exempt certain MVPDs.  It also rejected requests that it expand the rules to cover non-vertically integrated programming and/or terrestrially-delivered programming (although, as discussed below, it is seeking additional comment on whether it could or should expand the rules beyond their current application to satellite-delivered, cable-affiliated networks).

            Modification of Program Access Complaint Procedures.  The FCC’s Program Access Order also adopted certain modifications to its program access complaint procedures.  Specifically, the FCC codified the existing requirement that cable operators and/or programmers served with a program access complaint attach to their answers copies of any documents that they rely on in their defense.  The FCC also modified its discovery procedures, which previously provided that requests for information had to be filed with and acted on by the FCC staff.  The revised rules allow parties to a program access complaint to serve requests for relevant information directly on opposing parties.  The recipient of a discovery request will then have an opportunity to object to any request for documents not in its control or not relevant to the dispute.  Pending resolution of such objections by the FCC staff, the demand for documents will be stayed.  A party’s failure to comply with a valid discovery request in a timely manner may lead to an order finding the party to be in default.  In order to protect confidential information, the FCC promulgated a revised “Protective Order” limiting disclosure of such information to counsel and certain other persons not in a position to use the information for competitive commercial or business purposes.  Although a number of parties asked the FCC to adopt a more expedited schedule for resolving program access complaints, the decision retains the current “goals” of resolving denial of programming complaints within five months and other program access cases within nine months.  Finally, while the FCC found that the current rule allowing parties to submit to alternative dispute resolution in lieu of an administrative hearing was too restrictive, the FCC declined to adopt a rule subjecting all program access complaints to mandatory arbitration; instead, the revised rules provide that where the parties agree to engage in alternative dispute resolution within 20 days of the close of the pleading cycle (but before the FCC decides whether to forward the complaint to an administrative law judge), the FCC will suspend action on the complaint. 

II.        NOTICE OF PROPOSED RULEMAKING ON TYING AND OTHER PRACTICES

            “Tying” Practices by Broadcasters and Cable Programmers.  The centerpiece of the new program access-related rulemaking seeks comment on whether the FCC has the authority to prohibit programmers from engaging in wholesale “tying” practices that force distributors to agree to carry unwanted services in order to obtain the right to carry a desired channel.  According to the FCC, the refusal by programmers to offer their services to distributors on a “stand alone” basis harms MVPDs and their subscribers by forcing the MVPD either to forego carriage of programming desired by its customers (and potentially essential to the MVPD’s success) or to carry additional programming that is not desired, resulting in higher rates and the unavailability of capacity for other services.   With specific reference to tying by broadcasters, the FCC notes that the legislative history of the statutory retransmission consent provision and the subsequent FCC orders applying the “good faith” negotiation requirement seem to condone the practice.  The notice asks for comment both on the FCC’s jurisdiction to restrict tying by broadcasters and on whether such a restriction would raise any First Amendment concerns.  With respect to tying practices involving non-broadcast cable networks, the FCC asks whether “take-it-or-leave it” tying arrangements constitute an “unfair method of competition” prohibited by the program access rules and, if so, whether the FCC is limited to addressing tying by programmers that are vertically-integrated with a broadcaster or cable operator or can also regulate the practices of programmers affiliated with DBS or independent programmers.  In this regard, the FCC tentatively finds that tying arrangements by non-cable affiliated programmers would appear to have the same adverse impact on distributors and consumers as tying by broadcasters or cable-affiliated services. 

            Extension of Program Access Rules To Terrestrial Networks and Networks Vertically-Integrated With DBS and Other Non-Cable MVPDs.  As indicated above, the notice of proposed rulemaking also addresses whether the FCC can and should apply the program access prohibitions on exclusivity and discrimination to services other than cable-affiliated, satellite-delivered networks (including services affiliated with DBS and services distributed terrestrially).   The notice acknowledges that the FCC has repeatedly found in the past that Congress intended for the per se prohibition on exclusivity to apply only to cable-affiliated, satellite-delivered networks.  However, the notice identifies a number of other Communications Act provisions that it suggests might provide it with the requisite authority to regulate additional types of programming.  In this regard, the notice indicates that the FCC already has found that withholding terrestrially-delivered cable-affiliated programming is “a significant concern that can adversely impact competition in the video distribution market.”  

            Required Delivery of Programming to “Shared Headends” and Imposition of Restrictions on Other Contract Terms (e.g., Mandatory Non-Disclosure Provisions; Unreasonable Advertising Requirements; and “Unwarranted” Security Requirements).  The rulemaking notice identifies a number of issues that, according to the FCC, are of particular concern for small and rural MVPDs.  These include the refusal of some programmers to deliver their services to shared headends because of the potential for unauthorized reception; the insistence of some programmers that MVPDs agree to non-disclosure provisions which prevent small and rural MVPDs from obtaining information about the market value of programming; unreasonable demands for advertising slots; and unwarranted security requirements.  The notice seeks comment about these various practices and whether the FCC can and should address them through new regulations.

Use of Arbitration and “Standstill” Requirements in Program Access Cases.  While the FCC rejected proposals that it mandate the use of arbitration or other alternative dispute resolution mechanisms to resolve program access disputes, it did ask for comment on the use of arbitration in the remedy phase of a program access case.  Specifically, the FCC sought comment on whether, where a cable programmer is found to have violated the program access rules, the remedy should be determined through the application of a “best offer” (also known as “baseball style”) arbitration.  The FCC also is soliciting comment on whether it should create an automatic “stay” provision that would preserve intact the terms and conditions of an existing program carriage agreement during the pendency of a complaint alleging a violation of the rules.

Early Application of New Sunset Provision.  Finally, although the FCC determined that the program access exclusivity provision should be extended for another five years, the notice of proposed rulemaking asks for comment on proposals that would allow a cable operator to escape the prohibition in as few as two years.  The notice also seeks comment on a related proposal to allow the exclusivity prohibition to sunset on a DMA-by-DMA basis. 
 

COMMENT DEADLINE: 30 DAYS AFTER NOTICE APPEARS IN FEDERAL REGISTER REPLY DEADLINE: 45 DAYS AFTER NOTICE APPEARS IN FEDERAL REGISTER

We would be pleased to respond to any questions regarding these matters.

 

 

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