In an Order released today, the Federal Communications Commission (“FCC” or the “Commission”) revised the calculation of maximum permissible rates for cable TV commercial leased access by changing from a formula that sets a uniform rate for all cable tiers to a formula that will set a separate rate for each tier. The result may reduce the regulatory burdens on cable providers of calculating such rates. It is unclear if the new formula will produce higher or lower rates for particular programmers because their rate will depend on the tier on which they are carried.   In the same Order, the FCC states that its role does not include interpreting the Constitution; but several Commissioners have their doubts about the Constitutional sustainability of the leased access rules, and they appear to give their blessing to cable operators to ask the courts to strike down the leased access rules as a violation of their First Amendment rights. 

The commercial leased access rules have a long and checkered history.   As originally enacted as part of the 1984 Cable Act, cable operators are required to set aside channel capacity for use by unaffiliated programmers. The amount of capacity that operators must reserve for leased access programming depends on the cable system’s total activated channel capacity – cable operators with more activated channels are required to set aside a greater number of leased access channels than those cable operators with fewer activated channels. The 1992 Cable Act also required the Commission to adopt maximum reasonable rates for commercial leased access. While leasing was intended to promote program diversity, the statute required that rates not adversely affect the operation, financial condition, or market development of the cable system, thus in effect establishing a floor as well as a ceiling for rates. The Commission accordingly adopted leased access rate regulations in 1993, and subsequently modified its leased access regulations in 1996 and 1997. The Commission’s implementing rules, which the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) upheld in 1998, include a formula for calculating maximum rates that cable operators could charge leased access programmers.

The commercial leased access regime never really stimulated leasing and pleased very few people, as measured by the extremely small number of instances it was used. Cable operators complained that the method for calculating rates was too complex, and produced rates that were too low, while programmers complained that the rates were too high for a feasible business model.   Although the Commission revised its commercial leased access rate rules in 2008, those revisions never went into effect.   Attentive readers of CommLawBlog know that in 2019, the Commission modified much of the leased access regulatory regime, in ways that made compliance easier for cable operators. In that 2019 action, the FCC also sought further comments on the calculation of rates, as well as on whether the entire regulatory regime violated the First Amendment rights of cable operators by forcing them to carry programming against their will, when there may be a sufficient number of other platforms that programmers might use instead.

In today’s Order, the Commission adopts its 2019 proposal to implement a “simplified” leased access fee calculation methodology that is tier-specific. The rate will be calculated by first determining the total amount the operator receives in subscriber revenue per month for the programming on the tier on which the leased access channel will be placed. Next, the operator will subtract the total amount it pays in programming costs per month for that tier. Finally, the operator will divide that figure by the number of channels on that tier. The resulting “average implicit fee” will be the maximum rate per month that a cable operator may charge a leased access programmer for a full-time channel on that particular cable tier.   The Commission believes that the shift from calculation of a uniform average implicit fee for all tiers all with subscriber penetration over 50 percent, to calculating the fee for only for the tier on which a leased access programmer seeks carriage, should reduce the burden on cable operators.   Of course, this does not seem to address the likely situation where a programmer seeks rate quotes for multiple tiers.

What, you may ask, will be the impact on rates from this new approach? According to today’s Order, “[r]ates are likely to decrease if leased access programmers request channel capacity on less profitable tiers, whereas rates are likely to rise if programmers request channel capacity on more profitable tiers.”   OK, then.

And then there’s the First Amendment.   As the Order notes, under applicable court precedent, the question would be whether the burden on operators taking on unwanted programming was justified by the governmental interest in promoting diverse programming. When the rules were upheld by the D.C. Circuit in 1998, there were almost no other platforms for exhibiting such programming. Obviously, the media universe has changed radically in the intervening 22 years, with the advent of numerous online platforms, as well as satellite carriers. Programmers pointed out, though, that the large expansion of cable TV channel capacity reduces the burden on cable operators.   While today’s Order states that the FCC will take no action to rule on Constitutionality, some Commissioners seem to favor the position that the leased access rules are no longer Constitutionally permissible.   The FCC appears to be inviting cable operators to challenge the leased access rules in court, either as a direct challenge to the new rules, or the next time that a programmer seeks to enforce its leased access rights.   Stay tuned.

If you have any questions about leased access, please contact us.