Before the Federal Communications Commission Washington, DC 20554 In the Matter of ) ) Amendment of the Commission’s Rules ) MB Docket No. 10-71 Related to Retransmission Consent ) COMMENTS OF THE NATIONAL ASSOCIATION OF BROADCASTERS June 26, 2014 Table of Contents Introduction and Summary ................................................................................................. 1 I. The Commission’s Authority to Eliminate the Exclusivity Rules Is Questionable at Best...................................................................................................................... 6 II. Even If the Commission Has the Authority to Eliminate the Exclusivity Rules, Such Action Would Be Arbitrary and Capricious ................................................ 14 A. The Exclusivity Rules Promote Localism............................................................. 15 B. The Exclusivity Rules Are Pro-Competitive ........................................................ 19 1. The Exclusivity Rules Prevent Opportunistic Behavior by MVPDs ............ 20 2. The Exclusivity Rules Promote Economies of Scale and Scope ................... 23 3. Honoring Exclusivity Rights in the Television Broadcasting Context Is Not Anti-Competitive and in Fact Promotes Competition in the Video Marketplace ................................................................................................... 25 C. As the Commission Has Already Recognized, Eliminating the Exclusivity Rules Would Skew the Marketplace and Diminish Competition for Programming ....... 27 D. Congress and Marketplace Participants Have Repeatedly Relied on the Exclusivity Rules .................................................................................................. 29 E. Eliminating the Exclusivity Rules Would Improperly Tilt the Retransmission Consent Playing Field ........................................................................................... 32 F. Eliminating the Exclusivity Rules Applicable to Cable Would Create a Competitive Imbalance Vis-à-Vis Satellite Carriers ............................................. 39 III. Available Data Show that Eliminating the Exclusivity Rules Would Harm Local Stations and Impede Their Ability to Provide Quality Service to Viewers .......... 40 A. Markets With Two Affiliates of the Same Network ............................................. 42 B. Markets Heavily Overshadowed by Another Market With Affiliates of the Same Network................................................................................................................. 44 C. Markets with a Low Power Affiliate .................................................................... 46 - ii - D. Markets Where the FCC Has Reclassified a Significantly Viewed Station ......... 47 IV. The Existence of the Statutory Copyright Licenses Requires Exclusivity Rules As a Counterweight .................................................................................................... 50 V. Broadcasters Cannot Achieve the Same Important Exclusivity Protections Solely Via Private Contract .............................................................................................. 57 A. The Commission Is the Appropriate and Most Efficient Forum for Enforcing Exclusivity Rights ................................................................................................. 57 B. The Privity Problem May Be Insurmountable ...................................................... 58 C. Private Enforcement Would Be Slow, Expensive, and Uncertain ........................ 60 1. Private Enforcement Is More Expensive and Time-Consuming ................... 60 2. Private Enforcement Would Lead to Inconsistent Results ............................ 67 Conclusion ........................................................................................................................ 69 History of Program Exclusivity Rules .............................................................. Appendix A Compass Lexecon Report .................................................................................. Appendix B - iii - Before the Federal Communications Commission Washington, DC 20554 In the Matter of ) ) Amendment of the Commission’s Rules ) MB Docket No. 10-71 Related to Retransmission Consent ) COMMENTS OF THE NATIONAL ASSOCIATION OF BROADCASTERS The National Association of Broadcasters (“NAB”)1 submits these comments in response to the Report and Order and Further Notice of Proposed Rulemaking (“Exclusivity Notice” or “Notice”),2 asking whether the Commission should modify or eliminate its network non- duplication and syndicated exclusivity rules (collectively, the “Exclusivity Rules” or “Rules”).3 For the many reasons discussed below, the Commission should retain its Rules. Introduction and Summary The Exclusivity Rules are an essential component of a competitive television marketplace that serves local viewers. To “implement key policy goals,” Congress and the Commission together have, over time, carefully constructed a “mosaic of . regulatory and statutory provisions (e.g., territorial exclusivity, copyright compulsory licensing, and mandatory carriage)” 1 NAB is a nonprofit trade association that advocates on behalf of local radio and television stations and broadcast networks before Congress, the FCC and other federal agencies, and the courts. 2 See Amendment of the Commission’s Rules Related to Retransmission Consent, Report and Order and Further Notice of Proposed Rulemaking, 29 FCC Rcd 3351 (2014). 3 See Exclusivity Notice at ¶¶ 1, 40, 55, 73. - 1 - relating to the marketplace for the creation and distribution of television programming.4 Among those “key policy goals” are (1) promoting the core principle of localism;5 (2) ensuring that local broadcasters, like other programming distributors, have the ability to bargain for and enforce exclusive contracts with program suppliers;6 and (3) promoting competition among participants in the video marketplace while preventing individual participants from gaining an unfair advantage that ultimately could harm the viewing public.7 Each element of the statutory and regulatory landscape directly and substantially supports these longstanding goals.8 Elimination of the Exclusivity Rules would undermine Congress’ and the Commission’s policy goals and be seriously detrimental to the public’s access to local television. The Commission’s authority to eliminate the Rules altogether is doubtful at best,9 especially given Congress’ express reliance on those Rules in multiple statutes for a quarter of a century. Even assuming, however, that authority exists, it should not be exercised. The Notice offers no rationale—let alone a persuasive one—for repealing the Rules. Indeed, eliminating them would be arbitrary and capricious for numerous reasons. 4 FCC, Retransmission Consent and Exclusivity Rules: Report to Congress Pursuant to Section 208 of the Satellite Home Viewer Extension and Reauthorization Act of 2004 (Sept. 8, 2005), ¶ 33, available at <http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC- 260936A1.pdf> (“2005 FCC Retransmission Consent Report”). 5 See Section II.A, infra. 6 See Section II.C., II.D, infra. 7 See Section II.C., II.E, II.F., infra. 8 These “key policy goals” have remained consistent since 1965, when the Commission first recognized that the nascent cable television industry had a structural advantage over broadcasters “with respect to the market for program product.” Amendment of Subpart L, Part 11 to Adopt Rules and Regulations to Govern the Grant of Authorization in the Business Radio Service for Microwave Stations to Relay Television Signals to Community Antenna Systems, First Report and Order, 38 F.C.C. 683 (1965) (“1965 Network Exclusivity Order”), at ¶ 57. 9 See Section I., infra. - 2 - First, as the Commission has recognized repeatedly, the statutes and regulations governing program exclusivity, retransmission consent, copyright licensing, and mandatory carriage are both interrelated and complementary, such that “when any piece of the legal landscape governing carriage of television broadcast signals is changed, other aspects of that landscape also require careful examination.”10 More significantly, Congress has relied on the FCC’s Exclusivity Rules in adopting several laws, including multiple amendments to the Copyright and Communications Acts. Eliminating or changing the Exclusivity Rules would upset the balance upon which Congress relied in establishing the legal regime governing the creation and distribution of television programming, including essential local programming that local stations provide. Second, elimination of the Exclusivity Rules would deter investment in broadcast content, including local content, and inflict serious harm on local broadcasters and the audiences they serve. The attached economic declaration by Compass Lexecon explains in detail the significant positive effects exclusivity has on broadcast investment generally and in local content specifically.11 It also discusses how importing distant programming would divert audiences away from local television stations. Diversion of audience would devalue the advertising spots that allow advertisers to reach their intended local customers, ultimately resulting in a loss of advertising revenue for local stations. As 85% of all station revenues are generated through advertising,12 local stations would have fewer resources to devote to local news, weather, 10 2005 FCC Retransmission Consent Report at ¶ 33. 11 Declaration of Mark Israel and