Questions of possible anticompetitive conduct to be examined
It’s ad in, with the Tennis Channel serving against Comcast at the FCC. The Media Bureau has designated for hearing the Tennis Channel’s program carriage complaint against the cable giant (and would-be NBC merger partner). While that doesn’t necessarily mean that the Tennis Channel will ultimately prevail in the match, it’s a good step in that direction. But there’s still plenty of in-court (or maybe out-of-court) action on tap before the final call will be made.
The Tennis Channel put the ball in play by serving up a complaint against Comcast. According to the Tennis Channel, Comcast has insisted on carrying it on Comcast’s Premium Sports Tier, even though Comcast carries several of Comcast’s affiliated cable channels – channels that happen to compete with the Tennis Channel – on more broadly distributed tiers. From the Channel’s perspective, this is a bad call: broader distribution means access to larger audiences and more potential revenues.
While Comcast struggled in the early rounds to counter the Tennis Channel’s volleys, the Bureau concluded that the complaint established a “prima facie” showing that Comcast had unreasonably discriminated against the Tennis Channel.
(A “prima facie” case here means that the allegations made by the Tennis Channel, if ultimately proved to be true, would be sufficient to support a conclusion of unreasonable discrimination. In other words, nothing has been proved yet, but the Bureau has decided that some investigation is warranted.)
The Communications Act (47 U.S.C. §536(a)(3), to be exact) prohibits multichannel video program distributors (MVPDs), like Comcast, from discriminating against “unaffiliated” programmers in a way which makes it hard for those unaffiliated programmers to compete fairly against programmers that happen to be “affiliated” with the MVPDs. The concern, obviously, is that an MVPD affiliated with a programmer is likely to favor that affiliated guy over any unaffiliated competitors, giving rise to possible unfair competition.
The Tennis Channel, which started in 2003, has been carried on Comcast systems since 2005. Comcast, which provides cable service in 7 of the 10 ten DMAs (and 24 of the top 30 television markets) has ownership stakes in several regional sport networks, and in the Golf Channel, the MLB Network, the NHL Network, and NBA TV. Comcast carries all of those affiliated sport networks on its Expanded Basic or Digital Starter tier – i.e., the tiers likely to enjoy the most subscribers. The program carriage agreement between Comcast and the Tennis Channel didn’t specify on what tier the Tennis Channel would be placed; that was left to Comcast’s discretion. As noted, Comcast has chosen to exercise that discretion in favor of putting the Tennis Channel on a premium tier. The Channel has been trying since at least 2009 to get moved to a different tier, without success.
In reviewing program carriage complaints of this sort, the Commission looks to the treatment of the complainant programmer as compared to similarly-situated cable-affiliated programmers, e.g., the NHL Network. If such similarly-situated programmers are being treated differently than the complainant, then the Commission considers whether the dissimilar treatment has unreasonably restrained the complainant from competing fairly.
In this case the Bureau determined that Comcast’s affiliated sports channels were being placed on a tier with higher viewership than the Tennis Channel. The Bureau also found that: (a) the disparity in tiers could be affecting the Tennis Channel’s ability to compete for national advertising; and (b) the Channel’s subscription fee revenue was lower than Comcast’s affiliates due to the lower viewership of the premium sports tier. The Bureau also focused on the fact that the channel placement decision was made unilaterally by Comcast, and had not been the result of negotiation with the Tennis Channel.
That was enough for the Bureau to decide that the matter had to be resolved by an administrative law judge (or at least through the FCC’s Alternative Dispute Resolution (ADR) processes). (Again, the Bureau’s action here does not mean that Comcast is definitely guilty as charged; rather, it simply means that there’s enough smoke to warrant checking to see if there’s any fire.)
There would appear to be strong benefits for both parties to agree to proceed to ADR.
First, both parties would avoid substantial litigation costs. The hearing process is not cheap – in terms of time, money, aggravation and distraction – for either side. And the hearing process gives neither side any real control over either the length of the process or the final resolution. (How long do such hearings take to get resolved? As one recent example, the ALJ in the Weath TV hearing issued his recommendation in 2009, but the matter is still awaiting a final decision from the Commission, a decision which can then be appealed to the courts.)
Another factor that might be considered here is the fact of the Commission’s on-going review of the merger of Comcast and NBC. The potential for unfair, anticompetitive circumstances arising from such a merger is high, and the regulators tend to be on the lookout for such potential in their evaluation of the merger proposal. A hearing on the Tennis Channel’s complaint could give Comcast’s opponents an opportunity to develop an evidentiary record of past anticompetitive conduct by Comcast, a record which would likely not be helpful to its prospective merger efforts.
The choice of hearing vs. ADR is up to the parties. They have until October 15, 2010, to notify the Commission as to how they want to proceed. We’ll update you as developments warrant.