Wednesday, December 21, 2011

The Tennis Channel Ruling: No Mere Foot Fault

This was no mere foot fault. A Federal Communications Commission Administrative Law Judge (ALJ) issued a decision yesterday that was far enough out of bounds that perhaps it will be a game-changer that persuades policymakers that outdated legacy communications laws and policies no longer make sense.

The ALJ ruled in favor of the Tennis Channel in its "program carriage" complaint against Comcast. In essence, the ALJ ruled that Comcast discriminated against the Tennis Channel, which is not affiliated with Comcast, by not acceding to the Tennis Channel's request that it be moved, in the midst of its contract term, to the same program tier as two of Comcast's affiliated sports channels. The ALJ finds the Tennis Channel is sufficiently similar to the Golf Channel and Versus channels that they must all be located in the same program neighborhood for Comcast to avoid running afoul of the anti-discrimination prohibitions in the agency's carriage regulations.

In today's dynamic broadband world, including the broadband video world, the FCC inflicts much marketplace damage in the name of preventing or rectifying "discrimination." Just witness last year's promulgation of net neutrality mandates. Net neutrality mandates are based on public utility-style regulation that has, at its core, a prohibition on discrimination. This discrimination regulation may have been appropriate in the monopolistic Ma Bell-era but it is not proper in today's competitive multi-platform broadband environment.

In the Tennis Channel case, the ALJ purports to be enforcing the Commission's program carriage regulations promulgated under Section 616 of the Communications Act which gives the FCC authority to prevent multichannel video programming distributors (MVPDs) like Comcast from restraining the ability of unaffiliated video program vendors from competing "fairly by discriminating."
"Fairly by discriminating." Aha. There's a lot of room for the exercise of unbridled administrative discretion encompassed in those three words.

In my "Build Back That Broadband Wall" commentary, published just last week in the Washington Times, I highlighted four examples to show how the FCC is extending, or proposing to extend, legacy analog-era regulations developed in last century's monopolistic narrowband environment into today's competitive broadband world. One example, somewhat prescient in light of the ALJ's decision, was the FCC's program carriage regulations.

Here is what I said in my commentary:

"The commission proposes to expand existing program carriage rules intended to prevent cable operators and other video programming distributors from discriminating against unaffiliated programming vendors. The existing rules, adopted in the early 1990s when cable operators still possessed market power and when vertical integration was more pronounced, no longer serve any useful purpose. Today, only two of the 25 most-viewed cable networks are wholly owned by cable operators. With two nationwide satellite television operators and a broadband telecommunications provider competing vigorously in most locales - not to mention a growing number of popular Internet video sites - cable operators lack the incentive and ability to discriminate against unaffiliated programmers. So there is a good argument the existing program carriage requirements should be eliminated, especially in light of free speech concerns raised by the government mandating carriage of particular programs. At the very least, however, the regulations should not be expanded as the commission now proposes. Contrary to the First Amendment, the expanded regulations would have the government injecting itself even further into decisions about what programming video providers must carry and where in their channel lineups such programming must appear."

To understand what is wrong with the ALJ's decision, in a very fundamental sense, please carefully consider what I wrote above – before the issuance of the ruling in favor of the Tennis Channel.

And, now also consider this:

·      In this instance, the Tennis Channel's placement in Comcast's program lineup was in accordance with a contract between the parties in which the Tennis Channel had agreed to its lineup placement. The amount of compensation negotiated under the contract was, of course, related to the agreed-upon tier placement.
·      Several other MVPDs simply made a decision not to carry the Tennis Channel at all, thus obviating any need to bargain about placement of the channel.
·      If Comcast is required to move the Tennis Channel from its present location, it almost certainly will be required, due to channel capacity limitations, to displace another program channel that Comcast has determined, based on its business judgment, either is more popular with its customers, or one that at least deserves an opportunity to try to build audience support.
·      In rendering his decision on "discrimination," the ALJ was required to make determinations concerning the similarity of the programming among program channels. It is true, I suppose, that tennis and golf are both "sports." But to make the type of determination rendered in this instance, the government regulator is required to examine the intricacies of program genres, program ratings, target audiences, and the like. This type of examination into programming decisions raises obvious free speech concerns.
So, in sum, the ALJ's decision in the Tennis Channel case was a ball hit out of bounds. The Free State Foundation's mission, proclaimed on our website, is to promote understanding of "free market, limited government, and rule of law principles." By ignoring the competition that exists in today's video marketplace, by, in effect, abrogating the negotiated contract in mid-term, and by deciding to substitute his judgment concerning the carriage and placement of programs based on an examination of the contents of the programming, the ALJ has managed to offend free market, limited government, and rule of law principles in one fell swoop.

In the not too much longer-term, taking account of today's competitive video marketplace in which cable operators, satellite operators, and telephone companies – and, increasingly, popular Internet video sites -- all compete for viewers, Congress should repeal the provision in the Communications Act authorizing the FCC to promulgate and enforce program carriage regulations.

A proper understanding of the First Amendment demands no less.
In the near-term, the FCC commissioners should reverse the ALJ's decision.