According to multiple sources, the Federal Communications Commission is proposing to undo the current ban on exclusive contracts between vertically integrated distributors and their co-owned programming networks. However, the deals that keep regional sports networks from competitors would remain presumptively out of bounds.
FCC chairman Julius Genachowski is expected to get enough votes to approve the order.
At presstime last week, commission aides were still poring over the chairman’s proposal to sunset the prohibition and taking meetings with concerned parties.
The order, which was circulated late on the Friday before Rosh Hashanah, took many by surprise, both inside and outside the commission, according to FCC sources. The National Cable & Telecommunications Association was not commenting on the draft order, but it had petitioned the FCC to sunset the provision.
No doubt, smaller cable operators represented by the American Cable Association will be less happy. The ACA was not commenting either last week, but it had argued that the ban was needed so members could continue to have access to must-have programming such as the regional sports networks.
With the move, the FCC is hoping to expand its solution for closing the terrestrial exemption/loophole to cover all exclusive contracts. Back in January 2010, the commission decided that cable operators that do not share their owned terrestrially delivered regional sports nets with competitors would be presumed to be in violation of FCC rules against unfair acts or practices. That will now be the presumption for satellitedelivered sports nets, and this unfair acts or practices prohibition will also be available for complaints about other kinds of programming.
It does, however, beg the question: Why did the Democratic chairman propose this deregulatory move?
Program access rules were adopted 20 years ago in response to a congressional mandate to sell programming to a nascent satellite industry. Two decades ago, the satellite industry was practically in its toddling stage; now, DirecTV and Dish Network are the second- and third-largest MVPDs behind Comcast, according to the National Cable & Telecommunications Association.
An FCC source familiar with the draft says it recognizes that market shift. In addition, the U.S. Court of Appeals for the D.C. Circuit, in upholding the rules against a Cablevision challenge, sent a strong signal that when the commission considered renewing the exclusivity prohibition for another five years (it would sunset automatically Oct. 5 unless renewed) it was likely, in its regulatory wisdom, to conclude that the prohibition was ready for sunset.
Then there is the argument that denied access can still be remedied though unfair practices rules and prohibitions on discrimination and undue influence—access rules that are not part of this sunset deal.
In addition, the only major MSO with extensive channel holdings is Comcast, but the FCC has already taken care of access issues related to the nation’s largest cable operator for years to come. As they do with the network neutrality rules, Comcast has program access conditions as part its acquisition of NBCUniversal that extend into 2018.
Despite the debate over the issue, Bernstein- Research analyst Craig Moffett downplays the signi! cance. “In reality, I don’t think this will have much impact,” Moffett said. “Today, the only vertically integrated cable operator is Comcast, with its 51% stake in NBCUniversal. Cablevision spun off its programming assets into Madison Square Garden and Rainbow over the last few years, and Time Warner Cable was fully separated from former parent Time Warner Inc. in 2009,” he wrote in a note to investors last week.
Moffett also pointed out that Comcast is subject to a consent decree as part of the NBCU deal that guarantees access to both its RSNs and cable networks on fair and reasonable terms enforced by arbitration. Moffett also doesn’t see much of a change when the consent decree expires. “Even [then], it is unlikely that Comcast would choose to make its non-RSN content unavailable to other distributors,” he said. “Comcast represents approximately 20% of the U.S. pay TV market, and would have to be willing to forego affiliate fee and advertising revenue from the other 80%.”
Cable operators represented by the National Cable Television Association have been arguing since before the Comcast/NBCU deal took its networks out of the equation that major programmers want viewers, and that if they weren’t reaching carriage deals it was not because of vertical integration—which is on the wane—but because of money. And if they weren’t offering up some programming to others, like regional news nets, it was because they wanted to differentiate services, which was pro-competitive.
As of now, the FCC chairman has proposed to look at all those arguments on a case-by-case basis.
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