FCC Proposes Axing 'Access'

Genachowski would lift ban on exclusive contracts and would still protect ‘must-have’ sports

According to multiple sources, the Federal Communications
Commission is proposing to undo the current ban on
exclusive contracts between vertically integrated distributors and
their co-owned programming networks. However, the deals that keep
regional sports networks from competitors would
remain presumptively out of bounds.

FCC chairman Julius Genachowski is expected
to get enough votes to approve the order.

At presstime last week, commission aides
were still poring over the chairman’s proposal
to sunset the prohibition and taking meetings
with concerned parties.

The order, which was circulated late on the
Friday before Rosh Hashanah, took many by
surprise, both inside and outside the commission,
according to FCC sources. The National
Cable & Telecommunications Association was
not commenting on the draft order, but it had
petitioned the FCC to sunset the provision.

No doubt, smaller cable operators represented
by the American Cable Association will
be less happy. The ACA was not commenting
either last week, but it had argued that the ban
was needed so members could continue to have
access to must-have programming such as the
regional sports networks.

With the move, the FCC is hoping to expand its solution for closing
the terrestrial exemption/loophole to cover all exclusive contracts. Back
in January 2010, the commission decided that cable operators that do
not share their owned terrestrially delivered regional sports nets with
competitors would be presumed to be in violation of FCC rules against
unfair acts or practices. That will now be the presumption for satellitedelivered
sports nets, and this unfair acts or practices prohibition will
also be available for complaints about other kinds of programming.

It does, however, beg the question: Why did the Democratic chairman
propose this deregulatory move?

Program access rules were adopted 20 years ago in response to a
congressional mandate to sell programming to a nascent satellite industry.
Two decades ago, the satellite industry was practically in its
toddling stage; now, DirecTV and Dish Network are the second- and
third-largest MVPDs behind Comcast, according to the National Cable
& Telecommunications Association.

An FCC source familiar with the draft says it recognizes that market
shift. In addition, the U.S. Court of Appeals for the D.C. Circuit,
in upholding the rules against a Cablevision challenge, sent a strong
signal that when the commission considered renewing the exclusivity
prohibition for another five years (it would sunset automatically Oct. 5
unless renewed) it was likely, in its regulatory wisdom, to conclude that
the prohibition was ready for sunset.

Then there is the argument that denied access can still be remedied
though unfair practices rules and prohibitions on discrimination and
undue influence—access rules that are not part
of this sunset deal.

In addition, the only major MSO with extensive
channel holdings is Comcast, but the FCC has already
taken care of access issues related to the nation’s
largest cable operator for years to come. As
they do with the network neutrality rules, Comcast
has program access conditions as part its acquisition
of NBCUniversal that extend into 2018.

Despite the debate over the issue, Bernstein-
Research analyst Craig Moffett downplays the
signi! cance. “In reality, I don’t think this will
have much impact,” Moffett said. “Today, the
only vertically integrated cable operator is
Comcast, with its 51% stake in NBCUniversal.
Cablevision spun off its programming assets
into Madison Square Garden and Rainbow
over the last few years, and Time Warner Cable
was fully separated from former parent Time
Warner Inc. in 2009,” he wrote in a note to investors
last week.

Moffett also pointed out that
Comcast is subject to a consent decree as part
of the NBCU deal that guarantees access to both its RSNs and cable
networks on fair and reasonable terms enforced by arbitration.
Moffett also doesn’t see much of a change when the consent decree
expires. “Even [then], it is unlikely that Comcast would choose to
make its non-RSN content unavailable to other distributors,” he said.
“Comcast represents approximately 20% of the U.S. pay TV market,
and would have to be willing to forego affiliate fee and advertising
revenue from the other 80%.”

Cable operators represented by the National Cable Television Association
have been arguing since before the Comcast/NBCU deal took its networks
out of the equation that major programmers want viewers, and
that if they weren’t reaching carriage deals it was not because of vertical
integration—which is on the wane—but because of money. And
if they weren’t offering up some programming to others, like regional
news nets, it was because they wanted to differentiate services, which
was pro-competitive.

As of now, the FCC chairman has proposed to look at all those arguments
on a case-by-case basis.

E-mail comments to jeggerton@nbmedia.com
and follow him on Twitter: @eggerton