STELAR-mandated changes permit market modifications for satellite carriage; some cable matters tweaked, too

The market modification process is about to get, um, modified, and thanks to Congress, it will be more inclusive as a result. In fact, the FCC has already signed off on the changes and some, but not all, of them are set to take effect on November 2. Read on for details.

As a general rule, a broadcast television station is carried on cable systems located in the station’s local market. That market is determined by the Nielsen-assigned Designated Market Area, or DMA, in which the station operates. Satellite services similarly deliver a station’s signal to subscribers located in that market.

In certain cases, however, the DMA doesn’t accurately reflect the true “local” market of a particular station. Recognizing this, the Commission has long had procedures in place to allow a broadcaster or cable operator to modify the relevant market for carriage on any particular cable system. Until now, the market mod procedure has not been available for satellite carriage. In STELAR, however, Congress directed the Commission to expand the procedures to cover satellite carriage as well as cable; Congress also directed the FCC to amend its rules for both services to promote access to in-state programming. (We reported on the FCC’s initial response to Congress’s direction back in March.)

Under the new rules, satellite market modification petitions will entail essentially the same considerations as cable market modifications, with a few key differences. Some of the new changes will also be applied to future cable market modifications.

Historically, the Commission has considered four statutory factors in evaluating a market mod request:

  1. Whether the station, or other stations in the same area, have been historically carried on the cable and/or satellite systems serving the community;
  2. Whether the station provides local service to the community;
  3. Whether any other station eligible to be carried by the cable or satellite system covers local news and events of interest to the community; and
  4. Evidence of over-the-air viewership in the community.

Note the significance of the concept of “community”. Whether or not a market mod is granted depends largely on a showing that a given community is (or is not) part of the broadcast station’s “local market”, regardless of what Nielsen may have determined. In the cable context, this tends to be straightforward, since cable operators generally register with the Commission to serve specific communities and are assigned Community Unit Identification Numbers (CUIDs).

But what constitutes a “community” for purposes of satellite carriage? In that context, the Commission has decided to evaluate satellite market mod requests on the basis of counties. This definition was chosen mainly because DISH bases its coverage on counties and DirecTV, while it bases coverage on zip codes, had indicated that it would accept the county as the community unit.

Based in part on this new definition of “community” for satellite market modification purposes, the Commission also decided that it would be a good idea to allow county governments to petition for market modifications insofar as satellite carriage is concerned. Note that this differs from the rules applicable to cable, which accord “standing” to file modification petitions only to the broadcaster or cable operator. (While the FCC recognizes that it’s unlikely that a county could obtain a market modification without the agreement of either the broadcaster or the satellite operator, it figures that expanding its standing rules for satellite market modifications could help solve the “orphan county” problem STELAR had directed it to address.)

To the four factors listed above the FCC has now added a fifth factor, which will be considered in both cable and satellite modification petitions. The goal is to promote access to in-state programming. Under this factor, the FCC will favor any modification petition that would promote access to an in-state station by adding a community to the local market of any station licensed to that state. Under this factor, the Commission will require only that the station show that it is licensed to an in-state community; the station will not need to show that it in fact provides local service to the community that it is requesting to add to this market. Nor will the station need to show that the community-to-be-added is not already served by other in-state stations (although such showings will be considered as “enhancing” a petition).

While this new factor may be important, the Commission has confirmed that it does not trump the other four factors. If those other factors are not satisfied, a solid showing under the new factor will not necessarily result in grant of a petition. Conversely, failure to satisfy this new factor will not preclude grant of a modification petition. In cases where the community is not in the station’s state, the factor will simply be inapplicable.

Under the new rules, the evidentiary showing required for satellite modifications will, with the addition of in-state showing noted above, be the same as it has been for cable market modification petitions. Any modification will be applicable only to the specific communities and stations included in the petitions. Modifications will also be granted only against the satellite operator(s) named in the petition.

While a station can name both DISH and DirecTV in a single request, modifications for cable and satellite cannot be combined in a single petition. Prior cable market modifications will not be automatically applied to satellite, but they will be considered under the “historical carriage” factor.

One ministerial change adopted in the Order (and not before its time) is to update all references to a station’s Grade B contour to the digital Noise Limited Service Contour (NLSC) to reflect the completion of the conversion to digital broadcasting.

If a cable or satellite market modification is granted under the new rules, the station will have 30 days from the effective date of that grant to elect mandatory carriage or retransmission consent relative to the covered cable or satellite operator. The new rules do not, however, change what happens if a station fails to make that election: it will default to must-carry on cable operators and to retransmission consent on satellite.

If the station elects mandatory carriage, the covered satellite operator must commence carriage within 90 days of that election. A petition for reconsideration will not toll that deadline, although the filing of a recon petition will toll a satellite or cable operator’s right to implement a modification that deletes a community from a station’s local market.

The major difference between cable and satellite market modification procedures is the availability to satellite operators of an “infeasibility” defense to a market modification petition. This is what Congress ordered: in STELAR, it directed the Commission to exempt a satellite carrier from any carriage modification if it was “not technically and economically feasible” for the satellite carrier to implement that modification. The Commission has duly adopted some detailed procedures for how an “infeasibility” defense could be raised, and the evidence that would be required. While they may look good on paper, they may end up being somewhat difficult to implement.

First, it will be considered per se infeasible for a satellite operator to carry a station to areas outside those covered by the spot beam on which the station is currently carried. If a satellite carrier submits a “detailed certification” (discussed below) making this showing, it will not be required to carry the station to such areas. All other potential grounds for an infeasibility defense will be considered on a case-by-case basis; in the event that the asserted grounds apply to only part of a county, the satellite operator will be exempted from carrying the station only to that part of the applicable county.

As part of any infeasibility claim, the satellite operator will have to: describe (under penalty of perjury) the process by which it determined that carriage is infeasible; and certify (also under penalty of perjury) that the same analysis has been applied to all other stations on the spot beam of the affected station. The Commission will not routinely require supporting documentation for such a certification, but it reserves the right to do so in any particular case. Accordingly, the satellite operator must retain such documentation during the pendency of any market modification in which the defense is raised.

Recognizing the inefficiency of examining all of the other market modification factors in a case where the satellite operator will ultimately claim infeasibility, the Commission has provided a “pre-filing coordination process” by which a station considering a market modification petition can find out if such a defense will be raised. Under the process, the petitioner (most likely a broadcast station, but possibly also a county government) must request in writing whether the satellite operator will raise an infeasibility defense to a proposed market modification. The satellite operator must then respond, via ECFS, explaining in detail any infeasibility defense it intends to raise. Such responses must be provided within “a reasonable amount of time”, which generally means within 45 days, although that time may be extended under extenuating circumstances.

If a satellite operator responds that it does intend to raise an infeasibility defense, the prospective petitioner can then either file a full market modification petition nonetheless, or may file a petition challenging only the infeasibility claim. If a satellite operator does not raise an infeasibility claim during the “pre-filing coordination process” or during consideration of the initial market modification petition, it cannot later attempt to deny carriage on that basis without initiating an entirely new market modification petition to delete the added communities from the station’s market. If carriage is currently infeasible, the FCC will not grant a market modification prospectively (i.e., a mod that would become effective after the infeasibility was resolved).

With the new procedures now in place, we can expect television stations and both cable and satellite operators to start lining up to file petitions to add or delete communities. They may want to wait a bit, though, because such petitions may be filed once the rules become effective. When that will be is not entirely clear. Technically the new standards will take effect on November 2. BUT, because some of the changes also involve new “information collections”, those must be run past the Office of Management and Budget thanks to the Paperwork Reduction Act. Until OMB has blessed them, the Commission cannot implement those changes. It’s unlikely that that process will be completed for another several months. (Check back here for updates on that front.)

So, what would the Commission do if it received a petition under the new standards before OMB approval? Based on one recent decision, it appears that the Commission will consider them nonetheless, although in that case – involving a cable market modification – the only new factor to consider was access to in-state programming, which was inapplicable in any event because the station was not in the same state as the communities. What happens in a case where a showing under the new standards are critical, or where one party argues that they should not even be raised before OMB approval, remains a more open question. Perhaps more interesting, however, is what happens if a broadcaster initiates a “pre-filing coordination process” before the rules take effect. Without OMB approval, the Commission can’t enforce its requirement that the satellite operator file a response, since that would be an “information collection” not yet approved by OMB. What happens then? Who knows, and hopefully we will not need to find out.