The video industry continues to experience aftershocks from the seismic 2009 DTV transition.
Several years ago, with the DTV transition looming on the near horizon, the Commission adopted two rules aimed at easing the anticipated effects of the transition on some cable viewers and cable systems. Since those effects were expected to be relatively short-lived, the rules were set to expire, or “sunset”, three years after the DTV transition.
Amazingly enough, we have just passed the third anniversary of the transition. In view of that occasion, the Commission has taken another look at the two rules to determine whether the sunset provision should be allowed to take effect or whether, instead, a continuing need exists for either or both.
The result: one of the two – the “viewability” rule – is gone, or will be gone in six months; the other – which exempts some small cable systems from having to carry HD broadcast signals in HD – will remain in effect for another three years.
The Viewability Rule
The viewability rule applies only to cable operators with hybrid analog/digital systems. Hybrid systems are those that opted, after the 2009 DTV transition, to provide an analog tier of programming (consisting of local TV signals and, in some cases some cable channels) so that subscribers with analog receivers would not require additional equipment.
The Communications Act requires that all broadcast stations carried pursuant to must-carry (as opposed to retransmission consent) be “viewable”. Accordingly, the FCC adopted the “viewability” rule, giving operators of hybrid cable systems two options: either (1) provide the digital signal of all must-carry stations in analog format (in addition to any digital version carried) to all analog cable subscribers, or (2) transition to an all-digital system and carry the signal in digital format only, provided that all subscribers have the necessary equipment to view the broadcast content.
As noted above, the rule was scheduled to sunset on June 12, 2012 (the third anniversary of the DTV transition). But the Commission figured that, as that date approached, it would take another look to see whether the rule might need to be retained. The Commission would consider whether or not to let the viewability rule die in light of the potential cost and service disruption to consumers and the state of technology and the marketplace.
Having taken that second look, the FCC has decided that the viewability rule should be allowed to sunset, but only after a six-month transition period. So the rule remains on the books until December 12, 2012. After then, while the Act will still impose a general “viewability” requirement, hybrid cable operators will enjoy greater latitude in satisfying that requirement. For example, they could choose to continue to down-convert digital must-carry station to analog, as they have been doing. Alternatively, they could transition to all-digital, but if they do so they’ll have to make must-carry signals available to analog subscribers by offering those subscribers “the necessary equipment for sale or lease, either for free or at an affordable cost that does not substantially deter use of the equipment”. As the FCC sees it, an “affordable” cost in this context means “free or a monthly fee of no more than $2”.
Hybrid cable operators that opt to transition must-carry broadcast TV stations from analog to digital delivery will have to give 90 days prior written notice (not the 30 days applicable to other similar notices) to affected broadcast stations and customers.
Importantly, the Commission’s Order does not change a number of aspects of cable carriage arrangements. In particular, it doesn’t change any carriage arrangements governed by retransmission consent agreements. Also, cable systems providing analog-only cable service must still continue to carry local must-carry stations in analog format. And (with some limited exceptions discussed below) must-carry TV stations broadcasting in HD format must be carried in HD on the cable.
Small System HD Carriage Exemption
The Communications Act requires that cable operators carry broadcast signals “without material degradation.” The Commission has historically interpreted this to mean, among other things, that HD broadcast signals must be carried to cable subscribers in HD. In response to concerns from small cable operators about cost and technical capacity, however, the FCC provided an exemption from the HD carriage requirement for certain small systems. The exemption was available to (a) cable systems with 2,500 or fewer subscribers that are not affiliated with a large cable operator (one serving more than 10 percent of all national multichannel subscribers), and (b) systems with an activated channel capacity of 552 MHz or less.
The exemption allows eligible systems to carry broadcast signals in standard definition (SD) digital and/or analog format, even if the signals are broadcast in HD, as long as all subscribers can receive and view the signal. The exemption, adopted in 2008, was (like the viewability rule) set to expire three years after the DTV transition.
But the FCC has now decided to extend the exemption to June 12, 2015. The goal is to provide small systems with additional time to upgrade their systems, allowing them to come into full compliance with the “material degradation” requirement, i.e., by carrying HD versions of all HD broadcast signals. The extra three years are intended to cushion the financial blow by letting the exempt systems spread the costs of the upgrade out over time.
The Commission’s decision setting out its disposition of these two rules has been published in the Federal Register, which means that the decision is now technically in effect. As a practical matter, that has little immediate effect, since the Commission has left both the viewability rule and the small system HD carriage exemption in place, at least for the time being. However, Federal Register publication does establish the deadlines for petitions for reconsideration or the initiation of judicial review proceedings. Some representatives of broadcast interests spent considerable energy attempting to get the viewability rule extended for another three years. Whether those interests will now attempt to get the FCC’s decision reconsidered or reversed remains to be seen.