ESPN vs. Cablevision's Dolan At The FCC

Washington—The Walt Disney Co. went on the offensive Wednesday to halt Cablevision System Corp.'s effort to push the Federal Communications Commission into restricting Disney's ESPN from demanding access to the vast majority of cable subscribers.

The Disney-Cablevision fight comes just weeks before FCC chairman Kevin Martin is expected to step down, ending a four-year period in which Martin attacked cable operators and programmers for not allowing subscribers to buy channels on an individual or a la carte basis.

Cablevision's lawyers have been working with Martin and his staff to get the five-member agency to start a rulemaking that would greatly restrict Disney's bargaining leverage not just for its cable networks but also for its 10 ABC TV stations. The rule would give cable operators the option to keep ESPN in package or sell it a la carte. ESPN is the most expensive basic cable network, costing cable operators about $4.00 per month in 2009.

Disney hit back in a sternly worded letter Wednesday to Martin and the other four FCC commissioners that accused Cablevision of two-faced behavior. According to Disney, Cablevision's advocacy at the FCC was totally odds with Cablevision's statements as a defendant in an antitrust suit aimed at breaking up cable programming packages and mandating more a la carte options as a remedy.

Disney pointed out that Cablevision has denied in the court case a series of allegations, including that programmers like Disney have used their market power to create large programming bundles that require consumers to pay for more channels than they wish to receive.

"Cablevision," Disney attorney Susan Fox wrote, "flatly and unequivocally" denied the allegations and urged the court to dismiss the litigation "with prejudice," meaning it was so frivolous it shouldn't get a second chance in federal district court in Los Angeles.

Martin told reporters Wednesday that he wanted the FCC to vote Dec. 18 to start the rulemaking. Among other things, he wants to bar ESPN from demanding carriage on expanded basic, cable's most popular programming package, and bar TV stations that demand compensation from insisting that all subscribers have access to their signals.

Martin said it was possible that his proposals could lower monthly cable bills without the need to regulate rates charged by cable operators.

"If cable programmers can negotiate whatever fee they want but it's up to the cable operators what tier they are placed in, the cable operators have said…they would have more flexibility to lower the retail rate," Martin said, relying on assurances by Cablevision, Mediacom and the American Cable Association, which represents hundreds of small cable system owners.

In the letter, Disney also complained that Martin's staff had prepared a list of "findings" designed to justify new rules curbing the bargaining clout of program suppliers. Those findings evidently track with the allegations in the pending antitrust suit. Disney suggested that Martin's proposal were designed to influence the court case.

"The `findings' in [the FCC's proposed rules] constitute a wholly inappropriate interference in the court-ordered process resolving the issues raised in an ongoing litigation," Disney's Fox wrote.

Cablevision chairman Charles Dolan has routinely complained that cable subscribers should not have to buy local TV signals first and should not be limited to purchasing cable networks in large packages as a result of contract terms demanded by key programming suppliers.

In Capitol Hill testimony and speeches, Dolan has refrained from urging federal regulators to intervene, especially with regard to his company's relationships with cable programmers. But Dolan has abandoned that stance.

"Cablevision strongly supports chairman Martin's efforts to put out for public comment this significant proposal, which would allow programming distributors to have the flexibility to develop innovative packages and enhance customer choice and value. Cablevision believes this proposal would benefit consumers, is important for the future of the industry and should be issued for comment by the [FCC]," Cablevision spokesman Jim Maiella said Wednesday afternoon.

Dolan has also advanced arguments in support of an a la carte business model, but Cablevision hasn't attempted to implement that strategy with its own programming division, Rainbow Media Holdings, which distributes AMC, IFC, Sundance Channel and WE tv.

Cablevision also owns MSG, a regional sports network. Cablevision withholds the HD version of MSG from Verizon, Cablevision's cable competitor in the greater New York City region.

Martin told reporters he has no plans to eliminate the legal exemption that allows Cablevision to restrict access to MSG's HD feed.

Cablevision's new alliance with Martin comes after the company in September hired its first full-time permanent lobbyist in Washington, D.C. in many years, scooping up one of Martin's closest aides, Catherine Bohigian. The value of the Bohigian-Martin connection to Cablevision is certain to change once Martin steps down when the Obama administration takes power on Jan. 20.

Nevertheless, Cablevision should be able to maintain access to Obama's FCC chairman. David Ellen, Cablevision’s executive vice president and general counsel for cable and communications, attended Harvard Law School with Obama and succeeded him as president of the Harvard Law Review.

Cablevision's efforts at the FCC have opened a sharp division within the cable industry, making it difficult for the industry to speak with a single voice in its regulatory advocacy.

A few years ago, Disney clashed with cable operator Cox Communications over the price of ESPN. But Disney's row with Cablevision has an embarrassing side because Cablevision COO Tom Rutledge was recently named chairman of the National Cable & Telecommunications Association.