FCC Rules in Favor of Tennis Channel in Program Carriage Case
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CLIENT ADVISORY edwardswildman.com Client Advisory | July 30, 2012 FCC Rules in Favor of Tennis Channel in Program Carriage Case - Orders Comcast to Carry Channel on Same Tier as Golf Channel and NBC Sports Network The Federal Communications Commission (FCC), in a 3-2 decision with both Republican Commissioners dissenting, ruled for Tennis Channel in its program carriage complaint against Comcast. The FCC’s decision largely upheld the Initial Decision of its Administrative Law Judge (ALJ) and required Comcast, within 45 days, to carry Tennis Channel on the same programming tier as Comcast’s affiliated sports channels, Golf Channel and NBC Sports Network (formerly known as Versus). Comcast was also ordered to pay a forfeiture of $375,000 to the U.S. Treasury and in the event that Comcast complies with the decision by carrying Tennis Channel on a more widely distributed tier, Comcast must pay Tennis Channel any additional carriage fees that are due under the parties’ contract. Background. On July 5, 2010, Ten- carry Tennis Channel on the same Golf Channel and Versus; and 3) nis Channel filed a complaint with tier as Golf Channel and Versus. Comcast treated Tennis Channel the FCC alleging that Comcast dis- The ALJ also required Tennis Chan- differently from Golf Channel and criminated against Tennis Channel nel to be carried on a comparable Versus on the basis of affiliation. on the basis of affiliation in viola- channel position in relation to Golf tion of the Communications Act and Channel and Versus. Comcast filed Key to the first finding were past the FCC’s program carriage rules. exceptions to the Initial Decision in statements by Comcast executives Tennis Channel argued that such January of 2012 arguing that the that affiliates were “treated like discrimination took the form of dis- ALJ misapplied the program car- siblings as opposed to like strang- parate distribution of Tennis Chan- riage rules and that the remedy ers” when being evaluated. The nel and Comcast’s affiliate sports imposed violated the First Amend- record also showed that Comcast channels Golf Channel and Versus. ment. Comcast also filed an Appli- moved NHL Network and MLB Net- Tennis Channel is distributed on cation for Review of the Media work off of the Sports Tier (where Comcast’s Sports Tier, a program- Bureau’s October 2010 HDO, Tennis Channel was located) and ming tier with narrower distribution asserting that Tennis Channel’s onto a more widely-distributed for which subscribers had to pay complaint was barred by the stat- tier when Comcast acquired an an additional fee, while Golf Chan- ute of limitations. equity interest in both. According nel and Versus are included with- to the Commission, this evidence out an additional charge on more Decision. The FCC’s order deny- undercut Comcast’s claims that Ten- widely distributed tiers. ing Comcast’s challenges finds nis Channel was carried on a less that the ALJ correctly decided that widely-distributed tier for legitimate The FCC’s Media Bureau issued a Comcast discriminated against Ten- business reasons. Hearing Designation Order (HDO) nis Channel on the basis of non- in October 2010 finding that Ten- affiliation and discriminated in The FCC’s order holds that the three nis Channel had made a prima favor of Golf Channel and Versus networks were similarly situated facie case of program carriage. on the basis of affiliation, both of because all show sports program- On December 16, 2011, follow- which, standing alone, are viola- ming, target similar demographics, ing a full evidentiary hearing, the tions of the Commission’s program have significant overlap in advertis- ALJ issued an Initial Decision find- carriage regime. The FCC found ers, and earn nearly identical rat- ing that Comcast’s carriage of Ten- circumstantial evidence existed to ings. The FCC was unpersuaded by nis Channel violated the program conclude that: 1) Comcast had a Comcast’s claim that other MVPDs carriage rules. The ALJ’s decision general practice of favoring affili- also treated Golf Channel and imposed a $375,000 forfeiture on ates over non-affiliates; 2) Tennis Versus more favorably than Ten- Comcast and required Comcast to Channel was similarly situated to nis Channel. Citing data that was 2 | FCC Rules in Favor of Tennis Channel in Program Carriage Case - Orders Comcast to Carry Channel on Same Tier as Golf Channel and NBC Sports Network redacted from the public version of payments in the event Comcast complaint was brought less than a the decision, the FCC found that complies with the decision by more year after this rejection, the com- some MVPDs carried Tennis Channel widely distributing Tennis Channel. plaint was not barred by the statute more broadly than Comcast while While the ALJ had also required of limitations. other MVPDs carried Golf Channel that Tennis Channel be placed and Versus less broadly than Com- on a comparable channel to Golf Dissent. The two Republican com- cast. The FCC also held that Com- Channel and Versus, the FCC did missioners issued a joint dissent cast’s failure to carry Tennis Channel not adopt that portion of the ALJ’s that harshly criticized the Com- on a more widely-distributed tier ruling, finding that Tennis Channel mission’s majority opinion. The created a “ripple effect” that influ- had not requested such relief nor dissent argued that there was no enced other MVPDs with smaller did the record provide enough evi- violation of the program carriage market share than Comcast to follow dence to justify a channel place- rules; Comcast’s carriage of Tennis Comcast’s lead in their distribution ment requirement. Channel was “within the industry of Tennis Channel. Comcast argued mainstream,” with every “major” that it had engaged in a cost-benefit With respect to the First Amend- MVPD distributing both Golf Chan- analysis to determine the placement ment, the FCC found, unlike the nel and Versus more widely than of Tennis Channel on the Sports Tier, ALJ, that Comcast’s First Amend- Tennis Channel. The dissent also but the FCC found the claimed anal- ment rights were implicated in the noted that when Comcast’s distri- ysis had failed to truly consider the case. However, the FCC found the bution of Tennis Channel was com- benefits of wider distribution of Ten- program carriage rules and remedy pared to other MVPDs that had no nis Channel. imposed were permissible, non-con- ownership interest in Tennis Chan- tent based regulation that survived nel, there was virtually no differ- According to the FCC, Comcast intermediate scrutiny. Likening ence. The concept of the “ripple unreasonably restrained Tennis the program carriage rules to the effect” was derided by the dissent, Channel’s ability to compete by rules that prohibit cable operators which argued that MVPDs would harming its ability to gain adver- from discriminating when selling or not blindly follow another MVPD’s tisers and denying it the resources delivering affiliated programming, distribution methods, even one as needed to obtain programming that which were previously upheld by large as Comcast, if there was a also was sought by Comcast’s affili- the D.C. Circuit, the Commission competitive advantage in choos- ated networks. Comcast harmed found that while the rules may ing a different method of distribu- Tennis Channel not just by limiting require some examination of con- tion. The dissent also criticized the its distribution but also by discrimi- tent in determining whether there requirement that Comcast pay addi- nating in favor of Comcast’s affili- has been a violation, ultimately tional carriage fees to Tennis Chan- ated networks, which competed the rules regulate anti-competitive nel if it complied with the decision directly against Tennis Channel. conduct and are not intended to by giving the channel wider distri- Furthermore, Comcast’s dominant encourage or discourage any par- bution. Such a requirement would, market position and possibly the ticular type of content. The remedy according to the dissent, ultimately ripple effect served to amplify these imposed was proper under interme- harm consumers by causing MVPDs competitive harms. diate scrutiny as it did not burden to protect themselves against future more speech than necessary to fur- complaints by paying more to more The FCC agreed with the ALJ that ther the important government inter- widely distribute less appealing requiring carriage of Tennis Chan- est of promoting competition in the networks. With respect to the First nel on the same tier as Golf Chan- video distribution market. Amendment question, the dissent nel and Versus was an appropriate submitted that the imposed remedy remedy to cure the discriminatory Finally, the FCC also dismissed did not further the government inter- harms in the case. The decision Comcast’s Application for Review est in question, promotion of com- does not restrict Comcast’s ability alleging that Tennis Channel’s com- petition, because it had the effect to place Golf Channel and Ver- plaint was barred by the statute of of forcing Comcast to treat Tennis sus (now NBC Sports Network) limitations. Comcast argued that Channel more favorably than Com- on a different tier from where the Tennis Channel had one year to cast’s MVPD competitors. channels are presently carried, bring a complaint from the date the but does require that Tennis Chan- parties entered into their carriage Going Forward. Comcast has nel be placed on that same tier. To agreement in March 2005. The indicated that it intends to appeal the extent that Comcast’s carriage FCC rejected Comcast’s argument, the FCC’s decision in the federal agreement with Tennis Channel finding that the statute of limitations courts. Because Comcast must com- requires additional payments to began to run in 2009, when Tennis ply with the decision’s ordered rem- Tennis Channel as a result of wider Channel’s request for different tier edies within 45 days, Comcast will distribution, the FCC states that placement was rejected by Com- likely seek a stay with the FCC and Comcast is expected to make such cast.