Cable TV and broadcast provisions tweaked as Congress re-authorizes satellite carriage of local TV stations.

Christmas is coming early this year … if, that is, you’re a direct broadcast satellite (DBS), cable or other MVPD operator, or a low power TV licensee. Not so much if you’re a full-power TV licensee, although there may be a little something under the tree for you, too.

All this is thanks to Congress, which has passed the STELA Reauthorization Act of 2014, commonly known as “STELAR”. All that remains is for President Obama to put his John Hancock on it, which we can expect to happen before New Year’s Eve. While the primary purpose of STELAR is (as its name suggests) to extend the provisions of STELA (i.e., the Satellite Television Extension and Localism Act of 2010), Congress couldn’t resist the temptation to tweak a number of provisions relating to MVPDs (DBS and others).

The major DBS-specific provisions of STELAR include:

Five More Years for STELA.The principal purpose of STELAR is to extend provisions of STELA, and, in particular, the exemption enjoyed by DBS operators from having to obtain retransmission consent for the carriage of distant network signals to “unserved households”. STELAR extends those provisions five years beyond their current expiration date of December 31, 2014.

Of course, STELA served largely the same purpose for provisions of SHVERA (the Satellite Home Viewer Extension and Reauthorization Act of 2004), which did the same for SVHIA (the Satellite Home Viewer Improvement Act of 1999), which did the same for SHVA (the Satellite Home Viewer Act of 1988). Starting with SHVA, those statutes created, and then extended (usually in serial five-year increments) the right of satellite TV providers to retransmit the signals of local broadcast stations. Why Congress has been reluctant to make these provisions permanent is not clear, but the result has been a new act, every five years, extending and tweaking various aspects of the laws governing DBS operation.

STELAR also extends an expiring provision of the Copyright Act that gives DBS operators a compulsory copyright license for carriage of distant TV signals.

Market Modifications for Satellite and Cable Carriage.Historically, the Communications Act has permitted cable operators and broadcasters to propose the addition or deletion of communities from a station’s local market for must-carry purposes. However, there hasn’t been any parallel opportunity for market modifications in the DBS carriage context. STELAR changes that: DBS operators and broadcast stations will now have the right to seek DBS market mods based on factors similar to those applicable to cable market mods.

The DBS market mod provisions tweak a number of areas. With an emphasis on the “value of localism”, the factors to which the FCC is supposed to pay “particular attention” in market mod matters include:

  • whether the station has been carried historically (on cable or DBS) within the community to be added or deleted;
  • whether the station provides coverage or other local service to such community;
  • whether the proposed market modification would “promote consumers’ access to in-state television stations”. (This factor is new for both DBS and cable market mod proceedings.);
  • whether any other TV station eligible for DBS carriage in the community in question provides news, sports or other coverage of interest to the community; and
  • viewing patterns in households that subscribe, and in households that do not subscribe, to MVPD services.

Additionally, STELAR will exempt DBS operators from having to carry a signal pursuant to a market mod if “it is not technically and economically feasible for [the DBS operator] to accomplish such carriage by means of its satellites in operation” at the time of the modification decision.

Under STELAR, no market modification will affect the eligibility of satellite households, in the community targeted by the mod, to receive distant signals under the DBS “if local, no distant” rule.

STELAR also directs the FCC to “update what it considers to be a community” for market mod purposes. Congress’s motivation here may be the fact that the FCC currently considers a “community” to be a cable TV franchise area for purposes of a cable market modification.

In addition, STELAR addresses a number of issues that affect both DBS and cable operators. Several of these provisions will probably not please many TV licensees. Among these are the following:

Protection for Significantly Viewed and Other TV Signals. STELAR directs the FCC to prohibit a television station from limiting an MVPD’s ability to carry a “significantly viewed” TV signal – or, for that matter, any other signal that the MVPD is otherwise authorized to carry – as long as the other station is not commonly owned with the MVPD. As a result, broadcasters will be prevented from demanding the inclusion, in retransmission consent agreements, of terms that would prevent the MVPD from carrying certain other stations. Such a prohibition could affect network contract provisions relating to the ability of affiliates to grant retransmission consent outside of their home markets.

Repositioning or Deletion of Stations During Sweeps.STELAR eliminates the Communications Act provision (and the related FCC rule) that prohibits cable operators from repositioning or deleting a local station during a national TV ratings “sweeps” period. In other words, cable operators will be free to reposition or delete stations even during sweeps.

Joint Retransmission Consent Negotiations and “Good Faith” Standards. As we all know, all parties to retransmission consent agreements are required to negotiate the terms of those agreements “in good faith”. Precisely what constitutes “good faith”, however, has been a matter of considerable contention for years. We know that the FCC is supposed to assess certain specific factors, as well as the “totality of the circumstances”, but beyond that, there has been little specific guidance.

As we reported last April, however, the FCC has decided to bar joint retransmission consent negotiations by two or more of the four most highly rated stations in a DMA where those stations are not commonly owned. In the FCC’s view, such joint negotiations would be a per se violation of the “good faith” requirement.

As unhappy as some broadcasters might be with that position, STELAR broadens the FCC’s prohibition against joint negotiations. Congress has now instructed the Commission to prohibit joint retrans negotiations by any stations in the same DMA that are not under “common de jure” control. STELAR also directs the FCC to commence a rulemaking to “review its totality of the circumstances test for good faith negotiations.” The direction to “review” the test does not suggest how that review should be resolved. However, in view of the fact that STELAR seems designed to limit broadcaster leverage in retrans negotiations, the mandatory review of the “totality of the circumstances” test may be viewed as subtle Congressional encouragement to the Commission to effect similar limitations.

But STELAR is not ALL bad news for broadcasters. For example:

Delayed Application of JSA Attribution Rule.Also as we reported in April, the Commission has determined that certain TV joint sales agreements (JSAs) will now give rise to attributable interests under the multiple ownership rules. As a result, in many markets, longstanding arrangements that had been viewed as consistent with the multiple ownership rules will have to be modified or unwound in order to bring them into compliance. The FCC has given affected parties until June 19, 2016 to take care of that. STELAR extends that compliance deadline by six months. (While the FCC will presumably issue a notice specifying the new deadline, we calculate it to be December 19, 2016.)

Expansion of Local Service Area for Cable Carriage of LPTV Stations. Low power television (LPTV) stations often have trouble obtaining cable carriage, in part due to limitations under the Copyright Act. Specifically, the “local service area” in which such stations may be carried least expensively under a compulsory copyright license has been limited to the area within 35 miles of the station’s transmitter site (in smaller markets) or 20 miles (in the top 50 markets), rather than the station’s entire DMA (as is the case for full-power stations). For LPTV folks STELAR includes a nice stocking-stuffer: it amends the Copyright Act to define an LPTV station’s local service area as the station’s entire DMA including any community outside of the DMA that is wholly or partially within 35 miles (in smaller markets) or 20 miles (in the top 50 markets) of the station’s transmitter site.

And one STELAR provision simply acknowledges the reality of the marketplace:

Repeal of MVPD Set-Top Box Security Integration Ban.One of the most controversial and hard-fought issues in STELAR involved the FCC’s regulation of TV set top boxes. Some background explanation: in order to watch MVPD-provided programming, customers typically connect their television to a set-top box, leased from the MVPD, which offers a programming navigation guide as well as security features that protect programming from copyright infringement. Nearly 20 years ago Congress tried to spur competition and innovation in the set-top box market: it mandated that consumers should be permitted to purchase set-top boxes directly from retailers. To facilitate the consumer embrace of such third-party-provided boxes, the FCC banned the “integration” of program navigation and security functions in boxes. It also required MVPDs to make available a security device known as “CableCARD” that can be popped into a third-party set-top box to permit access MVPD-encrypted video programming.

For a variety of technical and market-based reasons, the CableCARD concept never really caught on, and most subscribers today continue to lease set-top boxes from their MVPD, much to the chagrin of independent manufacturers and some consumer advocates. As an apparent concession to reality, STELAR repeals the ban on integrated set-top boxes, effective a year after STELAR is enacted. Some folks already have a waiver of the current ban. For anyone with a waiver that’s set to expire before this provision of STELAR takes effect, Congress provides an automatic extension through December 31, 2015.

The FCC must also convene a working group of technical experts to explore performance objectives, technical capabilities, and technical standards for a “technology and platform-neutral, software-based downloadable security system designed to promote the competitive availability of navigation devices”. The working group is required to meet within 90 days of the date of enactment of STELAR and to submit a report within nine months of enactment.

While many of the provisions of STELAR benefit cable and satellite operators, the impact on full-power TV stations appears mixed at best. Delay of the application of the JSA attribution rule may benefit some TV stations. The new provisions on market modifications may cut either way, depending on the facts in a particular market. But STELAR provisions on joint retransmission consent negotiations, program line-up modifications and deletions during ratings sweeps, and carriage of significantly viewed signals, all undercut the leverage of stations in retransmission consent negotiations. Exactly how extensive the reduction in leverage will turn out to be will depend in large measure on a number of STELAR-mandated rulemaking proceedings. Congress has directed that those proceeding be completed within nine months. Check back here for updates.