ACA set forth its views in comments filed June 22 in connection with the FCC's review of its program access rules, which generally prohibit cable networks owned by cable operators from refusing to sell their valuable content to unaffiliated pay-TV distributors, including ACA members. Unless retained by the FCC, the contract exclusivity ban is scheduled to sunset on Oct. 5.
In its comments, ACA urged the FCC to modernize its definition of a "buying group" to reflect current industry practice concerning the level of liability that a buying group agrees to assume. Although the FCC's current definition of a buying group requires the assumption of full liability for payments due to programmers under a master agreement, programmers today freely negotiate with the National Cable Television Cooperative (NCTC) for programming contracts without demanding such excessive liability.
As a result, the FCC's liability condition -- which remains unchanged since 1993 -- effectively, stands as an impediment to the ability of the NCTC to utilize the program access rules on behalf of its members. Once before the FCC recognized that its liability conditions were too restrictive and agreed to add a more market-oriented means for buying groups to provide financial assurances to programmers. The FCC must now ensure that such changes to its rules are made again.
"With nearly all small and medium-size MVPDs dependent on their buying group to secure rights to cable programming networks, these operators will receive protection from the program access rules only to the extent that their buying group is given the same protections in its dealings with cable-affiliated programmers that individual MVPDs are given, which is what Congress always intended," said Polka. "The time has come for the FCC to update its rules by revising its definition of ‘buying groups.'"
ACA also advised the FCC to prohibit cable-affiliated programmers from unreasonably excluding particular members of a buying group from opting into a master agreement. Currently, the program access rules set no explicit restraints on the ability of a cable-affiliated programmer to unreasonably prevent individual members of a buying group from participating in its master agreement with the buying group, even if the member normally purchases a substantial share of its programming from the buying group. ACA asked the FCC to adopt explicit and verifiable standards for determining when a buying group member may presumptively be allowed to participate in a master agreement.
"If a cable-affiliated programmer has the right to arbitrarily exclude any member that it wishes from its master agreement with a buying group, the requirement that cable-affiliated programmers must negotiate nondiscriminatory agreements could be rendered completely meaningless," Polka said.
Finally, with regard to buying groups, ACA asked the FCC to clarify that the standard of comparability for a buying group with respect to volume discounts is a single MVPD serving the same number of subscribers. ACA stated that the utility of the program access rules for buying groups has been dramatically undercut by the lack of a clear standard for this comparison. Now is the time for the FCC to clarify that for purposes of judging whether prices offered to a buying group are discriminatory, a buying group will be considered "similarly situated" to an individual MVPD offering the programmer to the same number of subscribers.
"The ambiguity in the regulations with regard to the standard of comparability for buying groups with respect to volume discounts can create uncertainty during negotiations, which could decrease deals being reached between buying groups and cable-affiliated programmers and increase the volume of program access complaints. By clarifying that the most reasonable and practical standard of comparability for buying groups is with an individual MVPD providing the programmer to the same number of subscribers, the FCC is likely to increase the likelihood of deals getting done and decrease the number of program access complaints filed," said Polka.
ACA also urged the FCC to address the significant competitive problem caused by the "uniform price increases" loophole. The FCC has repeatedly recognized that the nondiscrimination proscription in the program access rules has been largely ineffective because a cable-affiliated programmer can arbitrarily charge its affiliated cable operator any price, including one above its fair market value, without affecting the company's bottom line. Thus, a cable-affiliated programmer who charges all other MVPDs the same price it charges its cable affiliate will appear to be charging a facially neutral uniform price but, in reality, is inflicting disparate financial harm on unaffiliated MVPDs. As a remedy, ACA urged the FCC to explicitly adopt a fair market value standard, which takes account of prices charged for similar programming by non-vertically integrated programmers in evaluating complaints alleging price discrimination.
"ACA's proposal is not a foreign one to the FCC. The agency has repeatedly employed a ‘fair market value' standard to close the uniform price increases loophole in the remedial conditions it imposes to temper the effects of vertical integration in its transaction review orders, such as the recent Comcast-NBCU transaction. By adopting a fair market value standard, the FCC can ensure that cable-affiliated programmers do not unfairly disadvantage MVPDs through the imposition of uniform price increases for programming not otherwise actionable under the nondiscrimination provision of the program access rules," Polka said.
Finally, in order to prevent harm to competition and diversity in the market for MVPD services, it is imperative that all MVPDs, including small and medium-sized cable operators, have continued access to programming controlled by cable-affiliated programmers, ACA said, adding that the FCC must extend the contract exclusivity ban for five more years.
"The basic market structure wherein a very few vertically integrated cable operators control a significant amount of important programming has remained constant since the last time the FCC agreed to retain the prohibition on exclusivity. Absent evidence to the contrary, the FCC should extend the ban for another five years," said Polka.
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