Some three months after adopting new rules governing the leasing of channels on cable television systems for commercial use, the FCC has finally released those rules. The rules will go into effect 90 days after they are published in the Federal Register. These rules will not initially apply to channel leasing by entities that offer sales presentations and program-length commercials, but the FCC has invited comment on whether the scope of the rules should be expanded to include those entities.
The new rules require cable operators to post detailed information about their channel leasing policies on their websites, to respond to requests for leasing information within three business days, and to conclude contract negotiations and make channel capacity available within 35-60 days after receiving a request.
Upon request, cable operators must supply prospective lessees with information about their channel leasing policies and processes; the geographic area in which leasing is available, the number, location, and available time periods for each eased access channel; a rate schedule, any charges for studio facilities and other services; available methods for delivery programming; a sample contract; and information about their launch timetable.
Cable operators will not be required to lease channels covering a geographic area smaller than the area served by a single head-end, unless they make smaller areas available to other program services, in which case channel leasing must be made available in the same smaller geographic units.
A new formula has been adopted for determining the maximum permissible rate, reducing the maximum from the average amount a cable operator earns from other channels to the amount earned on the least profitable marginal channels, with an absolute cap of 10 cents per subscriber per month. When quoting a rate, a cable operator must include justification for that rate. Rates may vary between channel tiers with more than 50% subscriber penetration and tiers with less penetration. If a prospective lessee wishes to challenge a rate, procedures will be available for requiring cable operators to provide more detailed justification, including information about the terms on which they make other channels available; but some information may be provided subject to a written confidentiality agreement that will shield the information from any decision-making personnel of competitors. While the change to the marginal rate should be helpful to channel lessees, we anticipate that the calculations will still be complicated enough that most lessees will opt for the absolute 10-cent ceiling.
The new rules require any charges separate from the basic leasing rate to be reasonable, and it indicates that it will take a harder line on excessive insurance requirements, unreasonable contract provisions that are not applied uniformly to all program services, and unjustified technical assistance fees than it has in the past.
Cable operators must consider any reasonable method of delivery of programming suggested by a lessee. They must also provide information about leased channel program content in their program guides, provided that the information is provided to them far enough in advance and in a way that is compatible with the technology the cable system uses to generate its program guide. A cable operator may not charge for listing leased channel content information in its program guide, except to the extent that it charges other program providers for the same service.
Complaints about channel leasing policies must be filed with the FCC within 60 days after the claimed offense takes place. The cable operator must respond within 30 days, and the FCC says it will resolve complaints within 90 days after conclusion of the pleading cycle. Complainants will no longer have to obtain a rate analysis by an independent accountant prior to filing a complaint. Prospective lessees may also ask the FCC to discipline cable operators for failure to respond to requests for information in a timely manner without filing a formal complaint. A simple letter will suffice, and the FCC will fine cable operators $500 a day for dilatory conduct.
Finally, cable operators must file an annual report showing their leased access actual and maximum rates, usage, channel placement, requests received, requests rejected, differences in treatment of channel lessees, incidence of requiring lessees to move to a different channel, and complaints. Reports will be due April 30, and the public may file comments by May 15.
While the cable industry claimed that leased channel access is an unconstitutional restraint on their speech and taking of their property, the FCC said that these matters have previously been decided in court in favor regulation of channel leasing.
We will be happy to assist any clients who have any difficulty in negotiating with cable operators when the new rules go into effect. We suggest that if you think that the new rules will offer you a better opportunity to lease than you have had in the past, it would be wise to open negotiations with cable operators sooner rather than later, so that desirable channel capacity is not taken by others.