FCC Allows Prohibition on Exclusive Cable Programming Contracts to Expire

[Editor’s Note:  Paul Feldman is an attorney with the communications law firm Fletcher, Heald and Hildreth, Washington, D.C. (feldman at fhhlaw.com)]

Recently, the FCC released a Report and Order and Further Notice of Proposed Rulemaking that will likely impact the ability of some cable operators and telco video providers to obtain cable TV programming. In the Order, the FCC declined to extend the exclusive contract prohibition in its cable TV program access rules beyond the previous October 5, 2012 sunset date. This prohibition generally banned exclusive contracts between any cable operator and its affiliated programming vendor for satellite-delivered cable programming in areas served by the cable operator.

In place of the blanket ban on exclusive programming contracts, the FCC will fall back on case-by-case evaluation of such contracts, in which cable/telco/satellite operators (multichannel video programming distributors, or “MVPDs”) denied access to cable programming may file a complaint at the FCC. Importantly, this case-by-case approach will include the establishment of a rebuttable presumption that an exclusive contract involving a cable-affiliated regional sports network (“RSN”) has a prohibited purpose or effect.

It has been a long journey getting to this point. In the 1992 Cable Act, Congress enacted a prohibition on exclusive satellite-delivered cable programming contracts, but provided for termination of that prohibition on October 5, 2002, unless the FCC found that it “continues to be necessary to preserve and protect competition and diversity in the distribution of video programming.”  In June 2002, the Commission found that the exclusive contract prohibition continued to be necessary, and retained the exclusive contract prohibition for five years, until October 5, 2007. After conducting another review, the Commission in September 2007 concluded that the exclusive contract prohibition was still necessary, and it retained the prohibition for five more years, until October 5, 2012.  In 2011, the D.C. Circuit upheld the FCC’s ruling, but the Court made it clear that given the changes in the MVPD and programming industries, it did not expect, nor would it likely uphold, the FCC extending the prohibition past 2012.

As a result, under the FCC’s complaint process, MVPDs that have been denied access to cable programming will now have the burden of showing that the exclusive contract at issue is “unfair” based on the facts and circumstances presented. The FCC has held previously that determining whether challenged conduct is “unfair” requires “balancing the anti-competitive harms of the challenged conduct against the pro-competitive benefits.” In addition, the complainant will have the burden of proving that the exclusive contract has the prohibited “purpose or effect” of “significantly hindering or preventing” the complainant from providing satellite cable programming or satellite broadcast programming. Notably, the new Order states that it is “highly unlikely” that the FCC would find that the withholding of local news and local community or educational programming is prohibited, as local news and local community or educational programming “is readily replicable by competitive MVPDs and exclusivity has played an important role in the growth and viability of local cable news networks.” This would be in contrast to RSN programming, for which the FCC established a  rebuttable presumption that such exclusive contracts are prohibited, due to the unique nature of each sports event.

While some parties had urged the FCC to make the case-by-case litigation a bit less burdensome and time-consuming by enacting additional new rebuttable presumptions, the FCC deferred, and rather seeks comments on them in the Further Notice of Proposed Rulemaking (“FNPRM”). Among other issues, comments are sought on:  (i) a rebuttable presumption that a complainant challenging an exclusive contract involving an RSN is entitled to a standstill of an existing programming contract during the pendency of a complaint; and (ii) rebuttable presumptions challenging an exclusive contract involving a cable-affiliated “national sports network”.   The FNPRM also seeks comment on revisions to the program access rules to ensure that buying groups such as NCTC utilized by small and medium-sized MVPDs can file complaints on behalf of their members.   As part of this last issue, the FCC proposes to require that such buying groups open their membership on a non-discriminatory basis.

So, the net and most immediate effect of the FCC’s action is that the blanket ban on exclusive cable programming contracts is gone. When faced with denial of access to cable programming, operators will have to file a complaint at the FCC. While that process should be a bit less burdensome and time-consuming if the disputed programming is an RSN, the process still will not be quick or easy. And while the additional rebuttable presumptions proposed in the FNPRM  would be somewhat helpful, it will be an uphill battle to get the FCC to enact them. Telcos with questions or concerns on this issue should contact their telecommunications counsel.

0 thoughts on “FCC Allows Prohibition on Exclusive Cable Programming Contracts to Expire

  1. Thanks Paul for writing this, particularly with everything going on with Hurricane Sandy today.

    This story seemed to fall through the cracks.In fact, I couldn’t find it referenced on the FCC web site and didn’t see anything in the mainstream telecom press.

    The first I heard about it was from the presentation given at TelcoTV by OPASTCO’s Steve Pastorkovich. 5 years ago, this would have been a huge deal, but with everything else going on with the FCC, this story seems to now be buried in the noise.

    I do wonder how big a deal it is today, given the FCC restrictions imposed on Comcast due to the NBC acquisition.

    From a local content perspective, one has to wonder about the accuracy of this FCC comment quote from above, “is readily replicable by competitive MVPDs and exclusivity has played an important role in the growth and viability of local cable news networks.”

    There are instances where local providers are paying local high schools for exclusivity, so it may not always be replicable.

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