FCC Program-Tying Rules Sought by Small TV Providers

On average, 30 percent of channels in expanded-basic tiers are carried under “tying or bundling arrangements,” said the American Cable Association, citing data from a member survey. In such deals, small cable operators agree to carry multiple networks affiliated from one company. Cable programmers and TV stations let ACA members and others buy channels separately, but a single network costs too much compared with its bundled per-channel price, the group said. “Programmers and broadcasters set standalone prices unreasonably high to coerce purchase of their bundle,” it said. The group asked the FCC to require stations and cable networks to offer channels to pay-TV providers “on a standalone basis on reasonable rates, terms and conditions” and to bar programmers from linking “access to any channel [to] the obligation to distribute the channel on a specific tier or to a required percentage of subscribers.”

The NAB said it knows of no time a programmer required a pay-TV provider to carry a nonbroadcast channel to get permission to air a terrestrial station. Broadcasters usually “offer a menu” of options to pay-TV companies, the NAB said. Choices include cash payment for the right to carry the station, promotion of the broadcaster by the pay-TV provider and purchase of station ads by the provider. “As the commission has recognized, cable operators for many years consistently refused to pay cash compensation for the right to retransmit and resell on a paid subscription basis the valuable signals of local broadcast stations,” the NAB said. “Broadcasters have been left to negotiate -- at the urging of cable operators -- for other forms of non-cash consideration, including carriage of additional program services.”

Several telco TV groups said the FCC should ban such tying arrangements because the deals force them to carry channels they don’t want, jacking up customer bills. Stations and cable networks require telcos to “take unwanted video programming and put it in their basic or expanded basic tier in order to have access to the network’s flagship programming,” said the National Telecommunications Cooperative Association. “The end result is consumers are paying higher cable rates.” A filing by four groups said packages are “rampant in the industry” and reduce subscribers’ choice of programming. “Small MVPDs are often presented with ’take it or leave it’ offers or their equivalent from programmers on a regular basis,” said the Organization for the Promotion and Advancement of Small Telecommunications Companies, the Independent Telephone and Telecommunications Alliance and others: “'Carriage negotiations’ in today’s marketplace for small MVPDs is largely a misnomer. Oftentimes, there are no negotiations to speak of for these providers.”

The FCC should start a study of carriage deals, said the Broadband Service Providers Association, whose membership includes RCN and SureWest. The inquiry should be set up like the 1978 kickoff of the Network Inquiry Special Staff to examine broadcasting and newer programming services, the group said. It asked for an FCC notice of inquiry seeking comment on what the report should cover. “Rather than the commission choosing winners and losers in this battle of the experts, the BSPA believes the commission should instead allow its thinking in this area to be informed by an independent study.” The Community Broadcasters Association likened channel tying to Hollywood studios requiring movie theaters to buy multiple films, a practice that the Supreme Court outlawed in 1948. “There can be no distinction in how the legal principle must be applied,” said the group of low- power stations. “Tying carriage of one program channel to carriage of others is an abuse of the copyright on the first channel, in violation of the Sherman Act.”

Disney said programmers have a First Amendment right to package content in deals that benefit consumers by lowering marketing and ad costs and increasing programming diversity. A pay-TV company can always pay cash to carry one of Disney’s 10 ABC stations without any of the company’s other channels, it said. The FCC has found that discounts for those buying broadband, TV, and VoIP from one company are beneficial, Disney said. “Packaged offerings do not, as the commission suggests, consist of ‘individual and unrelated segments;’ instead programmers’ multiple networks often contain programming consistent with a single theme. Some parties believe that prohibiting packaged offerings would reduce cable rates and perhaps lead to retail a la carte, with perceived benefits for consumers. The commission should not prohibit packaged offerings based on this flawed reasoning.” The FCC lacks authority to regulate cable rates or require a la carte, Disney said.

The FCC can’t use section 628 of the Communications Act to regulate video programming further, having recently extended for five years a ban on exclusive deals for channels owned by cable operators, said NCTA and Comcast. AT&T and other filers asked the FCC to keep the ban. NCTA said such rules aren’t needed with increased video competition, citing Verizon’s promise to offer 150 high definition channels before 2010 and DirecTV’s claim to have higher-quality HD channels than cable. “When the marketplace has reached a point where new and established competitors claim they have better programming than incumbent cable operators, it is almost impossible to justify retention of existing regulation of cable-affiliated programming, let alone expansion of those regulations,” NCTA said: “The commission’s continuing interest in additional regulation of the video programming marketplace is difficult to understand.”