FCC Gives Cable Rivals Greater Access to HD Regional Sports Networks

On Wednesday, the Federal Communications Commission ruled that cable operators that own cable sports networks cannot withhold their HD versions from satellite and telco competitors. But the ramifications of the ruling are unclear, as it appears that decisions will be made on a case-by-case basis and will require plenty of work by lawyers on both sides of disputes.

According to the order, the commission has authority under Section 628(b) of the Communications Act to take action if a cable operator engages in unfair acts, defined as withholding terrestrially delivered, cable-affiliated programming from satellite or telephone-company providers in the same market.

Satellite and telco providers can file complaints to pursue program-access claims similar to those involving cable-affiliated programming that is delivered via satellite. Because the claims require an additional factual inquiry regarding whether the unfair act significantly hinders the complainant from providing cable programming to consumers, additional time will be required for the network owner to present rebuttal information.

Sports and HD
Delivery of HD sports networks, such as Cablevision-owned MSG Network or Comcast’s regional sports networks, is at the center of the decision. While SD versions of those channels are available to competitors, HD versions remain off-limits.

FCC Commissioner Michael J. Copps argues that the advent of HD has changed the sports-viewing experience. “This is must-have programming in standard definition; it is also must-have programming in high definition,” he said in a statement. “Today, we determine for good reason that withholding an HD feed is withholding a separate channel, even where a standard-definition version of the network is available.”

Commissioner Mignon L. Clyburn added that it makes little sense in today’s market to have two wholly distinct rules for satellite- and terrestrially-delivered programming.

“There is nothing inherent in either mode of delivery that ensures that there will be adequate competition in the multichannel video-programming distribution market,” she said. “Indeed, most consumers likely have no idea by what means any given network is delivered; what they do understand, however, is which providers actually carry the programming they most desire. The result, therefore, is that those operators who do not have access to critical programming may fail to produce the meaningful competition and diversity envisioned by Congress.”

Clyburn added that cable sports programming was at the center of the issue.

“There is no secret why vertically integrated operators would choose to withhold such programming because it is a make-or-break proposition for many consumers,” she said. “These actions severely limit competition, including the opportunities of new entrants, but also serve as a way in which a [cable operator] can gain a stranglehold on the market without having to innovate. So, instead of lowering prices, improving customer service, or generating new and diverse programming due to competitive pressure, an operator can simply withhold access to important programming it owns in some form or fashion and watch its competitors scramble to stay afloat.”

The ruling allows a satellite and telco operator to file a complaint with the FCC that the withheld regional sports network is hurting its subscription base. The owner of the network will then have 45 days to respond, and then the FCC will rule on whether the network must be made available.

Expanded Regs
In a dissent, Commissioner Robert McDowell said that, for 18 years, the FCC’s program-access regulations have been limited to programming delivered to cable headends by satellite.

“The plain language of Section 628 bars the FCC from establishing rules governing disputes involving terrestrially delivered programming, whether we like that outcome or not,” he said in a statement. He quoted Supreme Court Justice Anthony Kennedy in a different kind of case: “‘The hard fact is that sometimes we must make decisions we do not like. We make them because they are right, right in the sense that the law … as we see it, compels the result.’”

McDowell added that the meaning of Section 628 is ambiguous in the context of terrestrially delivered programming. “The better approach would be to seek explicit direction from Congress before taking further action,” he said. “Ambiguity alone is not a sufficient reason to justify new extension of government regulation. The action still must be reasonable, and I am not convinced that this order is.”

The Cable View
Comcast EVP David L. Cohen, speaking on WIP Philadelphia, said Comcast will challenge the FCC’s decision in an administrative process and will also tie the issue to DirecTV’s exclusive Sunday Ticket NFL package: “We will give DirecTV access to Comcast SportsNet Philly as soon as they give sports fans the ability to watch DirecTV on Comcast cable.”

He said there have been challenges to the exemption before but Comcast and other operators have won. New complaints filed against Cablevision and other operators by Verizon and AT&T gave the issue new prominence that will have a ripple effect on Comcast.

“This is another full-employment act for lawyers,” he added.

Proof of Loss
It’s questionable whether a satellite operator will be able to prove, at least in the Philadelphia market, lost subscribers. In an FCC filing Jan. 13, Comcast noted that satellite-TV penetration in the market rose to 14.4% of homes in 2009 from 3.9% in 2002 without the satellite companies’ offering Comcast SportsNet.

Commissioner Copps, however, said language is included to indicate that factual evidence, not just time-consuming and expensive analyses, can be the basis for showing harm. Provisions for continued service during disputes are intended to keep process from “being unduly lengthy and expensive,” he noted, adding that “protracted, expensive, and unnecessary procedures too often translate into consumer harm.”

Comcast’s Cohen believes the right answer for the American consumer is that the Sunday Ticket should be available on any cable company in the country that wants to offer it, just like MLB and NHL packages. However, Pilson Communications President Neal Pilson, former CBS Sports president, disagrees, pointing out that the NFL, not DirecTV, controls Sunday Ticket.

“Comcast is barking up the wrong tree,” he says, adding that there is a very specific reason the NFL did a deal with DirecTV:  a 10% buy rate is around 1.8 million homes.

Offering it over cable, however, could see subscription rates of around 10 million homes, he says. “That would significantly dilute the value of the agreements the NFL has with the broadcast networks. The NFL can’t make a deal with cable without diluting the revenue stream related to broadcast rights.”