Monday, October 8, 2012

Summary of the FCC's Elimination of the Bar on Exclusive Program Access Contracts


           In a unanimous decision, the FCC has decided not to extend its program access rules beyond the scheduled October 5, 2012 sunset date. [1] The Commission believes that the marketplace for video content has become sufficiently competitive to obviate the need for an absolute ban on exclusive contracts for satellite cable programming or satellite broadcast programming between any cable operator and any cable-affiliated programming vendor in areas served by a cable operator.  Congress enactment the rule in the 1992 “when cable operators served more than 95 percent of all multichannel video subscribers and were affiliated with over half of all national cable networks.” [2]
            To guard against the possibility of ongoing harm resulting from any individual exclusive access contract, particularly in regional markets and for specific types of content like sports, the FCC will consider complaints on a case-by-case process. [3] The Commission will retain a rebuttable presumption that an exclusive contract involving a cable-affiliated Regional Sports Network (“RSN”) has the purpose or effect prohibited in Section 628(b) of the 1992 Act [4] that established the ban based on the assumption that the FCC needed to preserve and protect competition and diversity in the distribution of video programming.  The Commission noted that additional safeguards exist in its conditional grant of authority for Comcast to merge with NBC/Universal. [5] Additionally the Commission stated that it will require program suppliers to honor the full term of existing supply contracts and access complaints can include claims of discriminatory treatment where a supplier provides access to one or more distributors, but not to others.  Lastly the FCC stated its intention to continuing monitoring the video programming access marketplace to ensure that “the expiration of the exclusive contract prohibition, combined with future changes in the competitive landscape, result in harm to consumers or competition . . ..” [6] 
            In the Further Notice of Proposed Rulemaking in MB Docket No. 12-68, the FCC proposed specific rebuttable presumptions about exclusive RSN access contracts.  The Commission sought comments on whether to establish a rebuttable presumption that an exclusive contract for a cable-affiliated RSN, regardless of whether it is terrestrially delivered or satellite-delivered, is an “unfair act” under Section 628(b) of the 1992 Cable Act as well as a rebuttable presumption that a complainant challenging an exclusive contract involving a cable-affiliated RSN is entitled to a standstill of an existing programming contract during the pendency of a complaint.  Additionally the Commission proposed to treat as rebuttable presumptions with respect to the “unfair act” element and/or the “significant hindrance” element of a Section 628(b) claim challenging an exclusive contract involving a cable-affiliated “national sports network” and a rebuttable presumption that, once a complainant succeeds in demonstrating that an exclusive contract involving a cable-affiliated network violates one or more provisions in Section 628 of the 1992 Cable Act
            The FCC’s decision not to maintain a bar on exclusive program access contracts represents a conclusion that the video programming marketplace evidences greater competition and less domination by vertically integrated companies, such as Comcast, that have ownership interests in both video program creation and distribution.  The Commission acknowledges that the record here shows a mixed picture, indicating that vertically integrated cable programmers may still have an incentive to enter into exclusive contracts for satellite-delivered programming in many markets.” [7] 
            However, “the record evidence indicates that the cable industry’s share of MVPD subscribers nationwide has continued to decrease, from 67 percent in 2007 to 57.4 percent today, which indicates that vertically integrated cable operators as a whole – and considered solely on a national basis – have a reduced incentive to enter into exclusive contracts, compared to 2007.” [8]  On the other hand, the Commission noted that vertically integrated cable operators have maintained, or increased their market share in certain specific certain Designated Market Areas (“DMAs”).  Previously the Commission had determined that market shares in the range of 67-78 percent provided sufficient incentive and ability to use exclusive programming contracts as a way to maximize profitability.  The Commission noted that major multiple system operators, such as Comcast and Time Warner Cable, have pursued a clustering strategy in many DMAs accruing market share in excess of 70 percent. [9] Notwithstanding such concentration of control in many major metropolitan areas, the Commission has confidence in its ad hoc, complaint driven process in lieu of an absolute bar on exclusive program access contracts:
Because the record before us indicates that there may be certain region-specific circumstances where vertically integrated cable operators may have an incentive to withhold satellite-delivered programming from competitors, we believe that a case-by-case approach authorized under other provisions of the Act – rather than a preemptive ban on exclusive contracts – will adequately address competitively harmful conduct in a more targeted, less burdensome manner.  We disagree with commenters to the extent they imply that Congress intended the prohibition to expire only once vertically integrated cable operators no longer have any incentive to enter into exclusive contracts.  Such an interpretation contradicts Congress’s recognition that exclusive contracts do not always harm competition and can have procompetitive benefits in some cases.  [10] 



[1]           Revision of the Commission’s Program Access Rules, Report and Order in MB Docket Nos. 12-68, 07-18, 05-192, Further Notice of Proposed Rulemaking in MB Docket No. 12-68 Order on Reconsideration in MB Docket No. 07-29, FCC 12-123 (rel. Oct. 5, 2012); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-12-123A1.doc.
[2]           Id. at ¶1.
[3]           .In addition to allowing us to assess any harm to competition resulting from an exclusive contract, this case-by-case approach will also allow us to consider the potentially procompetitive benefits of exclusive contracts in individual cases, such as promoting investment in new programming, particularly local programming, and permitting MVPDs to differentiate their service offerings.” Id. at ¶2.
[4]               47 U.S.C. § 548 (2010) codified at 47 C.F.R. § 76.1002.
[5]           [A]pproximately 30 satellite-delivered, cable-affiliated, national networks (accounting for 30 percent of all such networks) and 14 satellite-delivered, cable-affiliated, RSNs (accounting for over 40 percent of all such RSNs) are subject to program access merger conditions adopted in the Comcast/NBCU Order until January 2018.  These conditions require Comcast/NBCU to make these networks available to competitors, even after the expiration of the exclusive contract prohibition.” Id. at 4.
[6]           Id. at 4.
[7]           Id. at 17.
[8]           Id.
[9]           “The Commission has, in past orders, observed that clustering may increase a cable operator’s incentive to enter into exclusive contracts for regional programming.  In the 2007 Extension Order, the Commission noted that Comcast passed more than 70 percent of television households in 30 Designated Market Areas (DMAs) and TWC passed more than 70 percent of television households in 23 DMAs.[9]  Based on the 2011 data provided by the cable operators, Comcast now passes more than 70 percent of television households in [REDACTED] DMAs and TWC passes more than 70 percent of television households in [REDACTED] DMAs.  Id. at 19.
[10]          Id. at 21.

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