CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

Way back when, in the misty eons of time prior to the Cable Act of 1992, broadcast stations got carried on cable systems pursuant to the “must-carry” rules. In rough terms, the cable systems had to carry local stations, and broadcasters had to allow such carriage. But with the 1992 Act, Congress started to coax the players into a more market-oriented arrangement. In addition to must-carry (which remained in place as an alternative), broadcast carriage could be agreed-to through “retransmission consent” arrangements privately negotiated between TV station and cable operator. The broadcaster had to elect which approach it would take in advance of the relevant three-year term. Those electing retransmission consent (or “retrans”, to the cognoscenti) were then left to cut whatever deal they could.

The advantage to the broadcaster was that, if it could negotiate a favorable deal under retrans, it could get compensation for carriage that, under must-carry, it was giving up for free. The downside, of course, was that a broadcaster electing retrans and then unable to tie down a deal risked losing out on any carriage during the three-year term. Bummer. (All parties to retrans negotiations were, and still are, required to deal in good faith. While accusing the other side of acting in bad faith is a standard ploy, to date such claims have not moved the Commission to interject itself into retrans dealings. Basically, it’s beyond difficult to establish that the other guy is negotiating in bad faith – and in its petition Big Cable pretty much concedes as much.)

In the early rounds, the cable companies held most, if not all, of the cards. Since they were all monopolies in their respective areas, they could avail themselves – usually successfully – of the tried-and-true negotiation position of “my way or the highway”. Broadcasters electing retrans usually ended up getting access to one or more additional cable channels and maybe some advertising avails and the like –whatever scraps the cable company chose to leave on the table – but no cash payments for their programming.

Then a funny thing happened over the course of the last 18 years or so. Competition crept into the MVPD industry, through satellite services (i.e., DirecTV and Dish) and telephone company offerings like FIOS. And while 200+ channels of non-broadcast programming may sound tempting, the viewing public still demonstrated an abiding affection for local TV stations. This happy confluence of trends was good news for broadcasters. Not so much for Big Cable.

Fast forward to New Year’s Eve, 2009, when a negotiating impasse between Fox and Time-Warner (one of the Big Cable team) splashed across the headlines and threatened to deprive millions of viewers of Fox’s New Years Day programming (can you spell “BCS”?). A couple of months later, ABC went mano-a-mano with Cablevision in the NYC market, cutting off carriage of the Oscars® for the first 13 minutes of the show before a deal was struck and the show went on.

And two days after the Oscars® face-off, who shows up at the FCC but Big Cable, petition for rulemaking in hand.

According to Big Cable, the retrans system has unduly favored broadcasters from Day One. The only reason Congress adopted the retransmission consent/must carry regime, so their story goes, was to prevent then-dominant cable systems from undermining free over-the-air broadcasting by exercising the market power that their monopoly positions afforded cable operators.  They seem to think that, because broadcasters have gradually attained a more robust bargaining position, it’s time to have the guv’mint control the parties’ relationships. 

In its Petition Big Cable acknowledges that in the early days of retransmission consent, cable systems were able to deflect paying cash compensation by agreeing to provide “in-kind” compensation – e.g.,agreeing to carry other non-broadcast programming channels in return for the right to carry the primary broadcast signal. Now that broadcasters are negotiating for cash compensation, however, Big Cable says that they and their MVPD confrères are (horror of horrors!) being forced to either (a) pay the broadcasters and pass those costs along to consumers, or (b) run the risk of having to remove the broadcasters’ programming from their systems. And, according to Big Cable, broadcasters have taken to making unreasonable demands on cable and satellite operators. (Here, Big Cable bemoans the fact that the “good faith” negotiation requirement is so vague that MVPDs have not been able to show that broadcasters’ demands have ever constituted “bad faith” negotiating tactics. Go figure.)

To “reform” the system, Big Cable advances a number of proposals that would shift the balance of power back more in Big Cable’s direction. Here are the main ones:

First, the Commission should establish a mandatory dispute resolution system for retransmission consent negotiations, to bail out MVPD operators who find themselves unable to persuade the broadcaster that the offer on the table really should be acceptable to the broadcaster. This system would come into play not just on a showing of broadcaster bad faith (remember, that’s too difficult to prove), but any time a cable or satellite operator claims that the parties cannot reach an agreement. Once the dispute resolution process was invoked, the appropriate compensation level would be established by arbitrators or some type of expert panel – not through direct negotiation between the parties. 

Second, the new regime would effectively prohibit a broadcaster from demanding carriage of other programming services in return for the right to carry a broadcast signal by making such a demand a per se violation of the “good faith” negotiation requirement. Of course, Big Cable magnanimously suggests that the FCC should allow such arrangements, but only if the MVPD consents to them. That is, such an arrangement would be per se “bad faith” only if the MVPD didn’t like it.

Third, the Commission should impose an “interim” and continuing grant of retransmission consent for as long as (a) the MVPD continues to negotiate in good faith and/or (b) any dispute resolution process is ongoing. Adding that condition of “good faith” negotiation is interesting in view of Big Cable’s acknowledgement that it’s virtually impossible to establish that a party is negotiating in bad faith. So let’s get this straight. If the MVPD and broadcaster are negotiating, the MVPD gets to carry the broadcaster’s programming unless the MVPD is negotiating in bad faith, which is a showing everybody agrees can’t be made – so the MVPD gets to carry the programming. And if the negotiations reach an impasse (according to the MVPD), the only alternative is the mandatory and binding arbitration process – during which, again, the MVPD gets to keep carrying the programming. It would only be after the failure of both private negotiations and mandatory arbitration that a broadcaster could ever exercise its rights to prevent retransmission of its signals. It is unclear, however, how an arbitration process that is both mandatory and binding could ever fail.

The Big Cable proposals are stunning in their one-sidedness.  The broadcasters and MVPDs will negotiate – until the MVPDs decide the negotiations are at an impasse and demands arbitration.  A broadcaster seeking carriage of additional non-broadcast programming is automatically acting in bad faith – unless the MVPD agrees to it.  A broadcaster must extend its retrans consent until a deal is reached – and reaching a deal is mandatory.

And while Big Cable tries to depict itself as really just looking out for the consumer, it’s not at all clear that that self-serving claim withstands scrutiny. Big Cable’s claim is that, if MVPDs are forced (through the retrans negotiation process) to pay broadcasters for carriage, then those additional costs will be heaped on the broken and bleeding backs of the consumers, who will have to pay more to the MVPDs in order to watch broadcast fare. But who said that the cost of carriage has to be passed through to the consumer? Are MVPD profit margins so low that Big Cable can’t absorb those additional costs and still make a tidy profit? Serious attention should be paid to such questions before anybody swallows the “poor little consumer” claims of Big Cable. 

More fundamentally, the Big Cable proposal would transform the retrans consent bargaining process from a free market negotiation to a mandatory and binding arbitration, making it effectively impossible for a broadcaster ever to prevent a cable operator from retransmitting its signals.

It’s as if, back in 1992, Big Cable had agreed to play an ostensibly fair game of coin toss with broadcasters – but, because of cable’s then monopoly-based dominance, it was akin to playing with a two-headed coin, making it easy for Big Cable to win the toss each time. And now, 20 years or so into the game, with the two-headed coin removed and a more competitive normal coin put into play, Big Cable is saying that it’s happy to keep playing as long as the rules are tweaked ever so slightly to provide them with a “heads I win, tails you lose” option. 

Big Cable has not limited its push to the Commission. Cable and satellite operators have also gone to Congress, sending a letter raising many of the same points to the House and Senate Commerce Committees. In response, the NAB has fired back with its own letter to those committees. 

This is a fist fight that would ordinarily last some time, particularly because the Commission can be expected to be distracted from mundane mass media matters by its current preoccupation – nay, all-consuming obsession – for broadband issues uber alles. But in Congressional testimony on March 11, Chairman Genachowski said that the issue of the retrans consent process “is a subject that should be looked at seriously . . . for a framework that works for consumers.” Uh-oh. Cable’s play of the consumer card, heavy-handed and disingenuous though it may seem to many, may be the equivalent of Tinker Bell’s fairy dust which, when liberally sprinkled here and there, can cause otherwise flightless things to take wing. We shall see.

[Blogmeister’s Credit Report: This post is the cooperative effort of Dan Kirkpatrick, Jeff Gee and Harry Cole.]

FHH’s client, the Community Broadcasters Association (CBA), filed comments noting that this “share-time” approach is not the ticket to achieving greater minority and small-business access to media; rather, the ION/Urban approach would merely establish Urban as a new “gatekeeper” with whom minority programmers would have to deal to gain access. (And let’s not forget that 49% of Urban would be owned by ION.) While not a “minority” organization, the CBA does represent grass-roots efforts of local, low-power television broadcasters across the country, a large percentage of which count minorities among their owners.

Interestingly, the ION/Urban proposal was opposed by a number of entities with a decidedly “minority” bent. The Africa Channel, Gospel Music Channel, and SiTV (a Latino cable network) filed a joint petition arguing that the ION/Urban deal is a gimmick to get around must-carry restrictions. If it succeeds, they observed, it will be the smaller minority programmers who will suffer, as cable capacity will be used up by subdivided full power stations and become unavailable to smaller minority programmers.  They said that the proposal for “amoeba-like” subdividing of a TV channel is nothing more than an attempt to circumvent the limits of the must-carry rules.   

They also noted that: the Urban/Johnson programming proposal is vague (a point which even the supporting parties were forced to acknowledge), while existing minority programmers have existing schedules that are real; and the traditional FCC “share-time” concept involves two separate stations subdividing the hours of the day, not one station subdividing its spectrum.

Meanwhile, Entravision – the prominent Spanish-language media company – chimed in with comments asserting that the proposal is an attempt to circumvent must-carry rules and give big business another foot in the door to cable carriage.  Entravision pointed out that today’s must-carry system, as a practical matter, is for the benefit of only small stations because almost all large stations choose retransmission consent.  (Entravision appears to fear that if NCTA brings another challenge to the entire must-carry scheme based on the ION/Urban proposal, NCTA may win, and small independent full power stations will be the losers.  For that matter, so will Class A and LPTV stations with must-carry, although Entravision doesn’t mention them specifically.)

NCTA also opposed the proposal, but that was to be expected.

In the non-FCC arena, we have also learned of at least one website which has expressed strong concerns about the deal from a minority perspective.

So the much-touted minority support for the proposal is less than universal. It will be interesting to see how the deal – which reportedly has been heavily promoted by outgoing Chairman Kevin Martin – fares in the early days of the Obama administration.

Ordinarily, assignment applications (and  other major applications, for that matter) are treated as “restricted proceedings” under the Commission’s ex parte rules. Under those rules, if anybody wants to communicate with people at the Commission about a restricted proceeding, that communication has to be in writing with copies served on all other parties.  (While oral communications are at least theoretically possible, they may be made only if all other parties are present to hear the communication – a requirement which tends to put a damper on such things as a practical matter.)  The idea is that everybody with an interest in the proceeding should know what everybody else is telling the Commission.

When an otherwise restricted proceeding is accorded “permit-but-disclose” status, one-sided communications with FCC staff – including phone calls and in-person meetings – are fair game.  The only proviso is that the party making such ex parte communications must file a summary of the communication with the Commission; that summary then gets placed in the public file, available for anybody who happens to run across it.

While the after-the-fact written summary approach may seem a reasonable accommodation likely to keep everybody posted as to the flow of information into the Commission, experience suggests that such summaries may not be completely effective for that purpose.  While Commission rules require more, often such summaries seem a bit sparse, content-wise.  And even those that seem to provide a reasonably detailed description of what was actually said do not fully communicate the “feel” of the conversation.  Tone of voice, facial expressions, body language, seemingly offhand banter or comments are lost in the usually terse summary, and yet such factors can be as important as, or even more important than, the bland information set out in the summary.

The trouble is, of course, that since the only description you’re getting is from the folks who were in on the conversation/meeting, you have no way to dispute the accuracy of the summary.  This provides opportunities for some to engage in considerably more forceful lobbying than might otherwise be possible.  The Commission’s “permit-but-disclose” designation certainly does nothing to discourage any interested party, whether for or against the proposal, from trying to work some behind-the-scenes magic.

According to the Commission, classifying a proceeding as “permit-but-disclose” “permit[s] broader public participation.”  We’re not really sure why that would be so, since enabling one-on-one tête-à- têtes between (a) FCC officials and (b) advocates for only one side of the debate would ordinarily seem to limit, rather than expand, “public participation”.  But that’s the Commission’s story, and it’s sticking to it.

The fact that the ION/Urban application has been accorded permit-but-disclose status suggests that things may start to heat up at the Portals.  It’s possible that Chairman Martin sees the ION/Urban application as his last chance to require the cable industry to carry all (or most) digital streams in the post-DTV transition universe.  Commissioners Copps and Adelstein, long-time supporters of diversity (including increases in minority presence in the media), may see the ION/Urban deal as a step in the right direction, even if Urban’s owner, Robert Johnson, may not represent the type of grass-roots local programmers Copps/Adelstein might prefer. In any event, things may be getting interesting. Anyone with an interest in the proposal should be sure to keep an eye on notices of ex parte contacts in the Commission’s Daily Digest.

By the way, the current deadline for comments remains December 26, but it’s hard to imagine that the FCC is going to slam the door all that tight. We shall see.

Of course, the notion that digital streams might be treated as separately licensable “stations” is novel, to say the least. But don’t try to tell that to ION/Urban. To read their application, this is just a straightforward arrangement which falls comfortably under the Commission’s “share time” rule. (That rule may be found in Section 73.1715 of the FCC’s rules – good luck finding any reference in that rule to digital streams, though.)

The “separate licenses” component is an essential element of the proposal because ION and Urban are specifically asking, as part of their application, that the FCC rule that the cable and satellite must-carry rules will require MVPD carriage of Urban’s separate digital channels as well as ION’s primary stream programming. The must-carry rules accord carriage rights to “stations”, not “streams” – hence the insistence of ION/Urban on making sure that whatever Urban ends up with will be called licensed “stations”. This will likely be one of the most controversial elements of the new proposal, as the Commission has thus far resisted intensive efforts to secure must-carry rights for more than one digital stream in the face of vehement opposition by the cable and satellite industries. 

Even if the Commission were to adopt the concept, appeals will almost certainly follow. It’s far from clear that the proposed ION/Urban approach will get a judicial thumbs-up. Further, the mere fact that must-carry issues would be back before the courts could be bad news, since that might provide the courts an opportunity to throw out the entire concept of must-carry, much to the chagrin of many broadcasters.

Before the FCC gets to the must-carry issues, it will have to address the proposed “share-time” approach. Historically, the concept of share-time agreements has been limited primarily to radio stations, with two (or more) licensees sharing a given frequency by allotting each sharer particular time periods during which it could operate. In other words, parties to a share-time deal would not be able to operate simultaneously; rather, one party would operate the station for a while, then it would turn off its operation and the other party would turn on, and so forth, all according to a precise schedule set out in their respective licenses. Informal contacts with the FCC’s staff indicate that the sharing (and simultaneous operation) of digital television channels, combined with the issuance of separate licenses to multiple operators on the digital channels, would be difficult to sell to the staff. But, of course, the staff is not the Commission and the past is not always prologue. A new Democratic-controlled FCC may be enthused about the ION/Urban proposal, as would be Chairman Martin, whose views on cable regulation are not generally sympathetic to cable.

And doubtless in an effort to appeal both to Martin and to the ascendant Democratic administration, the ION/Urban proposal is larded with features likely to attract their favorable attention. Johnson, of course, is an African American who happens not to own any full-power TV stations. As a result, Urban (controlled by Johnson) is being pitched as a “new entrant in the broadcasting industry”. So the proposal would boost minority ownership, a strong plus in the eyes of many at the Commission.   (To be sure, some might question whether this is precisely what is contemplated by the popular notion of “diversity”. After all, Johnson is a billionaire with extensive media ties, and he would control only 51% of Urban – while ION, a non-minority entity with its own stable of full-power TV stations, would own the remaining 49%.)

And Urban is promising to launch a new programming format, including informational and issue-oriented programming targeted to serve the interests of African American viewers and other “underserved” persons in the 42 markets. Details on exactly what that programming might consist of are sketchy at this point, and Urban’s promise is somewhat porous. (“Urban will retain the flexibility to adapt its format to changing viewer needs and interests and other programming that is available in the marketplace.”) But the notion of minority-targeted programming in 42 TV markets provides a potentially irresistible sizzle – despite the fact that any FCC decision based on proposed programming would be subject to huge practical problems (f’rinstance, how would the Commission define “minority-targeted” programming, and how would the Commission define “underserved” persons, and what would happen if the licensee elected to abandon that programming – would the Commission attempt to impose its own programming preferences?)

The proposed share-time licensing approach raises interesting questions about the extent to which a TV licensee can (or should) control the use of the spectrum. If, as ION/Urban suggest, a DTV license really consists of multiple separate licenses, and if the licensee chooses not to use all of the separately licensable channels, why should that licensee be the one to decide who should be the “licensee” of the unused portions? Why should not the Commission make that call through, say, an auction process? Such an approach would open significant opportunities to smaller entrepreneurs, including, for example, numerous LPTV licensees. Additionally, it’s not clear how the ION/Urban approach would jibe with other proposals (e.g., Media Access Project’s “S Class” plan) for fostering greater diversity in media ownership.

Finally, it must be noted that the ION/Urban application is sparse on details. It doesn’t even include a copy of the assignment agreement governing the proposal – curiously, ION/Urban claim they don’t have to provide it with their application. The share-time agreement (which the applicants did file) is all of two pages long. It includes only the most generalized description of the arrangement and the ownership structure of Urban, providing that “the Parties will further specify the detail of their investments in Urban following the execution of this agreement.”

Still, the Commission is clearly taking the new share-time proposal quite seriously. The FCC has issued a public notice inviting comments or petitions on the proposal, although how anyone might be expected to comment on the application as it presently stands is something of a mystery. Let us know if you wish to participate.

Under well-established rules and precedent governing appeals taken to federal courts, a party seeking to challenge an agency’s ruling must demonstrate that that party would, in fact, be harmed by the ruling being challenged. (This is known generally as having to demonstrate that you have “standing” to bring the appeal.) 

In this particular case, cable operators who would be subject to the new rules would presumably have had a pretty easy time establishing their “standing”, since they would be the ones bearing the brunt of the rules. But cable operators did not appeal. Au contraire, they announced (through the NCTA) that they planned to comply with the new rules whether or not those rules got tossed.  

Instead, it was cable programmers who appealed. Since any harm that they might suffer would be, at best, secondary and indirect, they had an uphill struggle on the standing front. (Their argument was that the viewability rules would force cable operators to reserve more bandwidth for carriage of over-the-air stations than would normally be required, thus creating a shortage of cable bandwidth which would, in turn, increase “competitive pressure” on cable programmers.)  In the Court’s view, they came up short.  As a result, the Court slammed the door on the programmers without consideration of their substantive arguments, leaving the viewability rules undisturbed.

In the new Order, the FCC clarified that, although the over-the-air channel on which a station broadcasts may no longer be relevant, DTV must carry stations are entitled to carriage on the “major channel number” identified in the station’s DTV “program and system information protocol” (PSIP). The Order also noted that the “historic” channel positions and negotiated channel positions remain as additional options.

With respect to low power television stations, the Order clarified that qualified DTV-only low-power stations should be accorded the carriage rights they could have demanded for their analog signal. This carriage would be on the same terms as full-power DTV-only stations, meaning that the station can elect to be carried in digital or pay to have its signal downconverted to analog. In addition, the Order provides that the “good quality signal” standards for DTV-only low power television stations shall be the same as the the “good quality signal” standards for DTV-only full power television stations (i.e., -61 dBm at the cable system headend).