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Divided FCC Votes to Tentatively Ban Some Contract Terms

As expected, a politically divided FCC has voted to propose prohibiting unconditional most favored nation (MFN) clauses and "unreasonable" alternative delivery method (ADM) restrictions.

That vote came in approval of a program diversity Notice of Proposed Rulemaking (NRPM).

FCC chairman Tom Wheeler said the statute was clear that the FCC "shall" prevent cable operators from engaging in conduct that has the effect of unreasonably restricting unaffiliated video programmers, saying there was nothing reasonable about the MFNs and ADMs, which can limit over-the-top distribution.

The proposal tracks with conditions in the Charter-Time Warner Cable deal and would apply to contracts between MVPDs and independent programmers, defined as independent not only from the MVPD but from any major studio.

An NPRM is not a final order, so the industry will get to comment. But the Republican commissioners voting against the proposal suggested the FCC majority had already decided those contractual provisions needed to be banned, calling it an order masquerading as an NPRM.

Wheeler insisted the issues were being teed up would get plenty of discussion and any order would be based on that input.

Commissioner Jessica Rosenworcel also suggested it was far from a final conclusion, saying the item "asks" about the carriage agreements and "seeks" comment on certain clauses.

The commission also seeks comment on the impact of program bundling on costs and access to programming and on whether the FCC has the authority under program-carriage rules to prohibit the MFNs and ADMs. Wheeler suggested that last ask should indicate the FCC is still seeking input.

Wheeler described the MFNs in question as one-sided deals in which MVPDs say "give us the good stuff you got in other deals, but we won't give you the terms that made that a fair deal."

He branded unreasonable ADMs as meaning: "I am a big cable system. If you want to get on, I must be able to dictate your use in other media."

Republican commissioners Ajit Pai and Michael O'Rielly took aim at the proposal, saying limiting the contracts could actually hurt independents by making MVPDs less likely to strike deals with them. They pointed out that MVPDs were under no obligation to carry independent channels.

"We have to consider whether banning unconditional MFN and certain types of ADM provisions would make it less likely that independent programmers would be able to secure carriage by MVPDs," said Pai. "Would banning such contract terms make it more likely that those independent programmers already being carried by MVPDs would be dropped? Or would prohibiting such provisions make it more likely that a large MVPD would insist on exclusive deals with independent programmers, thus limiting these programmers’ reach? In short, would the Commission’s proposals make it easier or harder for independent programmers to gain distribution? Unfortunately, it is evident from the Notice that the Commission has already fixed upon an answer before the record has been compiled."

Dallas Harris, policy fellow at Public Knowledge, praised the FCC action.

“For far too long, major incumbent MVPDs have exploited their negotiating leverage over independent and diverse programmers to prevent the evolution of the video marketplace in pro-consumer and pro-creator ways," said Harris. "The FCC’s proposed rules would help level the playing field by forbidding certain contractual clauses that prevent independent programmers from providing their programming to competitive outlets, such as online video services. The Commission will also explore how bundling practices can harm viewers and independent creators. These measures would make it easier for independent programming to reach more consumers and discover new business models to fund the creation of even more programs."

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.