Tuesday, February 19, 2013

The Court Should Call A Double Fault

On February 25, the D.C. Circuit Court of Appeals will hear oral argument in Comcast Cable Communications v. FCC. This is the case in which the FCC, with Commissioners Robert McDowell and Ajit Pai dissenting, held that Comcast unlawfully discriminated against the Tennis Channel by refusing to accede to the Tennis Channel's request  – right in the middle of a contract term – that it be moved to a program tier with broader distribution than the one on which it was carried. 
After all is said and done, the court should call the FCC for a clear double fault. First, based on the facts of the case, the FCC should not have found that Comcast committed a statutory violation. Second, if it reaches the constitutional claim, the court should find that the FCC's decision violates Comcast's First Amendment rights. 
The FCC's Tennis Channel ruling is a clear case of agency regulatory overreach. Hopefully, the D.C. Circuit court will vacate the agency's decision. This will not only right a wrong, but it will also send a message to the agency that such regulatory zealotry is out of bounds. 
The basic facts of the case are really not in dispute. In the middle of a negotiated contract term, the Tennis Channel requested that Comcast move it from its current program neighborhood to the more broadly distributed tier on which two Comcast-affiliated networks – the Golf Channel and Versus (now called the NBC Sports Network) – were located. When Comcast refused, the FCC determined Comcast violated Section 616 of the Communications Act and the agency's regulations issued thereunder. Section 616 and the agency's implementing rules prohibit multichannel video program distributors ("MVPDs") from acting to "unreasonably restrain" unaffiliated program vendors from "compet[ing] fairly by discriminating in video programming distribution" on the basis of affiliation. 
The FCC determined that Comcast "discriminated" against the Tennis Channel in violation of Section 616 and the Commission's regulations despite the fact that, at the time of the ruling, six of the 20 largest MVPDs did not carry the Tennis Channel at all. And despite the fact that at the time the complaint was filed, every major MVPD that did carry the channel distributed the Golf Channel and Versus more broadly than the Tennis Channel. And, significantly, despite the fact that the FCC's ruling required Comcast to carry the Tennis Channel on a tier that would distribute the channel more broadly than it is distributed by its two owners – satellite operators DISH and DIRECTV – who happen to be Comcast's vigorous competitors in the multichannel program distribution market. The Commission ordered Comcast to move the channel to a different program tier. 
I initially addressed the problematic nature of this case in a blog back in December 2011 when an agency Administrative Law Judge ruled in the Tennis Channel's favor, a ruling the Commission affirmed in July 2012, essentially adopting the ALJ's reasoning. 
Without repeating everything I said in that December 2011 piece, I just want to make these points in advance of the upcoming oral argument. Even granting that the "discrimination" standard, with its competing "fairly" and "unreasonably" restrain language, is inherently somewhat vague and malleable, under the facts of this case, the agency's finding of discrimination on the basis of affiliation is unsupportable. Comcast was carrying the Tennis Channel in accordance with an agreement negotiated by the parties, and no other major MVPD was distributing the Tennis Channel in a manner more broadly than Comcast. When the complaint was filed, many large MVPDs did not carry the Tennis Channel at all, and all the major MVPDs that did carry it were distributing Versus and the Golf Channel more broadly. 
The Commission erred in finding "discrimination" under Section 616 just because the Tennis Channel was not treated in exactly the same manner as Comcast's affiliated sports channels. The statute does not require "equal treatment." Rather, it prohibits discrimination that is proven to be based on affiliation, a showing that, under the circumstances, could not be made. 
In my view, the Commission's action in the Tennis Channel case likely is inconsistent with the First Amendment as well. If Comcast is required to move the Tennis Channel from its present location, as the Commission ordered, it almost certainly will be required, due to channel capacity limitations, to displace another program channel that Comcast has determined either is more popular with its customers, or one that deserves an opportunity to try to build audience support. The decision to carry a channel, and where to place the channel, involves editorial discretion on the part of the cable operator that implicates free speech interests.

Moreover, in rendering its "discrimination" decision, the Commission was required to make determinations concerning the similarity of the programming among program channels. It may be true that tennis and golf are both "sports." But to make the type of determination rendered in this instance, the FCC necessarily examined the nuances of program genres, program ratings, target audiences, and the like. This type of detailed examination into programming decisions raises obvious free speech concerns regarding the violation of Comcast's First Amendment rights.

Indeed, while the Commission's Tennis Channel order in any event should be vacated, in light of today's competitive video marketplace environment, it is time for Congress to consider jettisoning the entire program carriage regime, especially as implemented by an overreaching agency. When Congress adopted Section 616 as part of the Cable Act of 1992, cable operators arguably possessed dominant market power in the multichannel video distribution marketplace. Now, more than two decades later, the marketplace environment is vastly different. With two satellite television operators competing, along with the "telephone" companies, cable's share of the MVPD market has dropped from 98% in 1992 to less than 60% today.

As the D.C. Circuit stated in 2009 in vacating in the FCC's rule limiting the number of subscribers a single cable operator could serve:
"First, the record is replete with evidence of ever increasing competition among video providers: Satellite and fiber optic video providers have entered the market and grown in market share since the Congress passed the 1992 Act, and particularly in recent years. Cable operators, therefore, no longer have the bottleneck power over programming that concerned the Congress in 1992. Second, over the same period there has been a dramatic increase both in the number of cable networks and in the programming available to subscribers." Comcast Corp. v. FCC [Lexis subscription required].
So, while the facts alone of the Tennis Channel case warrant reversal of the discrimination finding, if the court considers the First Amendment claim, it certainly should have in mind the present competitive multichannel video marketplace – which is more competitive now than in 2009.

And Congress should have the changed marketplace in mind as well when it revisits the current outdated provisions of the Communications Act.