Pride and Prejudice: The Saga of Carriage Discrimination between the Tennis Channel and Comcast
By Shwethambara Mani
In July 2012, the Federal Communications Commission (“Commission”) held Comcast Cable Communications, LLC (“Comcast”), the largest multi-channel video-programming distributor (“MVPD”) in the United States, liable for carriage discrimination against Tennis Channel. The Commission held that Comcast had given preferential treatment to its affiliates, Golf Channel and Versus, and discriminated against the similarly situated Tennis Channel. However, on August 24, 2012 a three judge panel of the United States Court of Appeals, for the District of Columbia Circuit (“Court”), allowed a stay of the order of the Commission, pending judicial review of the Commission’s decision. The Court’s decision creates another hurdle for Tennis Channel, which has been at loggerheads with Comcast for the past three years over the issue of carriage discrimination. While the climax of the saga is awaited, the implications on a cable operator’s freedom to allot tiers and a channel’s need to want more eyeballs, are the high stakes on the line.
Comcast Corporation is a leading media, entertainment and communications company, and is one of the largest cable operators and home Internet service providers in the United States. Comcast has over 22 million subscribers of video programming in the United States alone. In January 2011, Comcast Corporation acquired a controlling stake in NBCUniversal Media, LLC. Comcast Corporation originally owned the “Golf Channel” and “Versus”. Upon the merger with NBC, the channels were re-branded as “The Golf Channel on NBC” and “NBC Sports Network”, respectively.
Tennis Channel is currently the only 24 hour channel dedicated solely to tennis, established in 2003 by a group of investors including sports marketing firm IMG and minority investors, Andre Agassi and Pete Sampras. The channel has telecast rights to a wide range of events including the US Open, Wimbledon, the Australian Open, the French Open and the Davis Cup.
The Commission is an independent agency, overseen by the Congress, regulating interstate and international communications by radio, television, wire, satellite and cable in the United States. The Media Bureau (“Bureau”) of the Commission, develops, recommends and administers policy and licensing programs relating to electronic media. The Bureau determines whether a complaint requires a hearing, and issues a Hearing Designation Order (“HDO”). The administrative law judge (“ALJ”) is responsible for conducting hearings ordered by the Bureau or the Commission. Upon hearing the case, the presiding ALJ issues an initial decision which may be appealed to the Commission.
Comcast began carrying Tennis Channel in 2005 in its premium sports tier, with subscribers paying an additional monthly charge for access. The carriage agreement provided Comcast the authority to determine the carriage tier for Tennis Channel. In 2009, Comcast rejected Tennis Channel’s request for repositioning them on another tier, to enable broader penetration. In January 2010, the Tennis Channel filed a complaint before the Commission asserting program carriage discrimination on the basis of non-affiliation and affording preferential treatment to networks affiliated to Comcast. In October 2010, the Bureau in its HDO concluded that Tennis Channel had established a prima facie case of program carriage discrimination, and designated the complaint for hearing before an ALJ.
In the initial decision issued by the ALJ in December 2011, Judge Richard L. Sippel, found that Tennis Channel, Golf Channel and Versus are similarly situated networks. Comcast discriminated with regard to carriage by giving its affiliated networks more favourable channel placement and broader carriage, thereby hampering Tennis Channel’s ability to compete fairly in the marketplace. The ALJ observed that keeping the Tennis Channel on the premium tier diminishes the number of subscribers, the license fees, and advertising revenues. Further, the ALJ noted that Comcast being the largest MVPD in the United States, its distribution of Tennis Channel creates a ‘ripple effect’, by increasing the likelihood of other MVPDs’ carrying the channel at the same level of distribution
The ALJ ordered Comcast to pay a forfeiture of $ 375,000 and ordered the following remedial measures: (a) Equal Carriage – afford the same treatment in terms and conditions of video program distribution and carry Tennis Channel at the same level of distribution as its affiliates. Comcast was given discretion to determine the level of penetration for the three channels; and (b) Equitable Channel Placement – the ALJ also required Comcast to provide Tennis Channel with equitable treatment as to channel placement.
On an appeal by Comcast, the Commission stayed the interim decision of the ALJ in May 2012, to examine the issue at hand more closely. The final verdict came out in July 2012, ruling 3-2 in favour of Tennis Channel. The majority of the Commission held that Tennis Channel is similarly situated to Golf Channel and Versus in respect of programming, viewership, advertisers and ratings, and Comcast was liable for carriage discrimination on the basis of affiliation against Tennis Channel. The majority accepted that the discriminatory treatment adversely affected and restrained Tennis Channel from competing fairly in the video programming market, and the ‘ripple effect’ observation made by the ALJ. The majority upheld the constitutionality of the equal carriage remedy and held that it was in tune with the Commission’s Rules and the Communications Act, 1984. Comcast was given a period of 45 days from the release of the order to complete the remediation. The majority however rejected the channel placement remedy on the grounds that the remedy was not sought by Tennis Channel, and there was no evidence that the current placement restrained the channel from competing fairly.
However, Commissioners McDowell and Pai observed that Comcast’s treatment of Tennis Channel was within the industry mainstream. Rejecting the majority’s observation of the ‘ripple effect’, the dissent observed that Comcast’s carriage of Tennis Channel merely reflected, rather than drove the norm. The minority further observes that the majority’s decision could have adverse implications on programming costs, ultimately coming out of the end consumer’s pocket.
Comcast filed for an application for stay of the order with the Commission, which was rejected by the Commission. Thereafter, Comcast filed for a motion of stay of the Commission’s order on administrative grounds with the Court, contending that the Commission’s decision is arbitrary and capricious, and an abuse of discretion under the Administrative Procedure Act. The Court granted the stay of the Commission’s order, pending judicial review of the Commission’s decision.
With the Court staying the Commission’s order pending judicial review, the battle gets heated up between Comcast and Tennis Channel. Traditionally in the United States, cable regulation has never been as stringent as broadcast television; cable however has not enjoyed the privileges associated with print. Time Warner Entertainment v. FCC [56 F.3d 151 (D.C. Cir. 1995)], recognized the medium warp associated with cable, distinguishing it from print and broadcast. Cable, unlike broadcast, is not all pervasive and intrusive, and thus is not subject to the stringent content based regulation in the United States. However, the cable operator or the MVPD has gatekeeper control over television programming being transmitted to the end user, setting cable apart from other mediums. The MVPD being both the access point to subscribers as well as the disseminator of programming, is an important junction of exercising control over prices and access.
In the current scenario, Comcast is not only the largest MVPD, but also creates its own content through NBCUniversal, giving it a leeway to misuse its gatekeeper control to benefit itself and its affiliates. However, Comcast is not the sole subscriber to this model, other large MVPDs such as Time Warner are also into content creation, distribution and provision of cable services. While it is important to control and balance a MVPD’s role as the gatekeeper, it should also be kept in mind that the infrastructure costs involved with cable is much higher than most other mediums. Apart from advertisement revenues, subscription fees are the main source of revenue for an MVPD. From a purely business perspective, a MVPD having sowed the seeds should have the right to reap the returns, and decide how to reap them. Since the MPVD made the investment, it should have the right to determine and manage its business, including the carriage of channels. A certain amount of regulation helps balance and control the gatekeeper, however, excessive regulation may create a disincentive for MVPDs to enter into carriage agreements with new or non-related channels, thereby affecting the program diversity cable offers. Speaking from the point of view of channels, ideally every channel would want to be placed on a tier in which they can target more eyeballs. While requiring a MVPD to not discriminate against a channel is purposive and a necessary rule, micro-managing carriage agreements and the business relationship between the parties, may not yield the most effective results
The Indian Perspective
Coming to India’s perspective on cable channels and carriage – in India traditionally, for content creation and cable service providers were two completely different segments, and functioned separately. However, after the influx of DTH began a vertical integration of content creation and content distribution, an example of the same would be SunTV. The regulatory norms surrounding the carriage of channels went through some recent changes with the Digital Cable Regulations (“Regulations”) issued by the Telecom Regulatory Authority of India (“TRAI”) on April 30, 2012. The Regulations provide that every Multi System Operator (“MSO”) shall offer 100 free channels under the basic tier. All channels whether free to air or paid are to be offered on a-la-carte basis to subscribers.
The Regulations further provide for a reasonable carriage fee, not to be revised upwards for a period of two years from the date of the Regulations, and that MSOs shall mandatorily carry a minimum of 500 channels from January 1, 2013. TRAI has retained for itself the authority to intervene in instances where the carriage fee is unreasonable. The Regulations come as a positive step towards stabilizing, regulating and managing MSOs and their treatment of channels, and ensuring program diversity for the viewer. While TRAI asserts that the implementation of the Regulations will lead to better consumer choice, variety, quality content, adequate revenue to stakeholders, healthy environment for the industry, in addition to bringing in transparency, the practical enforceability of the Regulations, are yet to be seen.
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