thefederalregister.com

Daily Rules, Proposed Rules, and Notices of the Federal Government

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket Nos. 12-68; 07-18; 05-192; 07-29; FCC 12-123]

Program Access Rules

AGENCY: Federal Communications Commission.
ACTION: Final rule.
SUMMARY: In this document, the Commission declines to extend the prohibition on exclusive contracts involving satellite-delivered, cable-affiliated programming beyond its October 5, 2012 expiration date. Instead of this prohibition, the Commission will address exclusive contracts involving satellite-delivered, cable-affiliated programming on a case-by-case basis in response to program access complaints. The Commission also affirms its expanded discovery procedures for program access complaints.
DATES: Effective November 30, 2012.
ADDRESSES: Federal Communications Commission, 445 12th Street SW., Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT: For additional information on this proceeding, contact David Konczal,David.Konczal@fcc.gov, or Kathy Berthot,Kathy.Berthot@fcc.gov, of the Media Bureau, Policy Division, (202) 418-2120.
SUPPLEMENTARY INFORMATION:

This is a summary of the Commission'sReport and OrderandOrder on Reconsideration,FCC 12-123, adopted and released on October 5, 2012. The full text of this document is available for public inspection and copying during regular business hours in the FCC Reference Center, Federal Communications Commission, 445 12th Street SW., CY-A257, Washington, DC 20554. This document will also be available via ECFS (http://www.fcc.gov/cgb/ecfs/). (Documents will be available electronically in ASCII, Word 97, and/or Adobe Acrobat.) The complete text may be purchased from the Commission's copy contractor, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. To request this document in accessible formats (computer diskettes, large print, audio recording, and Braille), send an email tofcc504@fcc.govor call the Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

Summary of the Report and Order and Order on Reconsideration I. Introduction

1. In thisReport and Order,we decline to extend the exclusive contract prohibition section of the program access rules beyond its October 5, 2012 sunset date. This prohibition generally bans exclusive contracts for satellite cable programming or satellite broadcast programming between any cable operator and any cable-affiliated programming vendor in areas served by a cable operator.1 The prohibition applies only to programming that is delivered via satellite; it does not apply to programming delivered via terrestrial facilities.2 Congress directed the Commission to adopt this prohibition in 1992 when cable operators served more than 95 percent of all multichannel video subscribers and were affiliated with over half of all national cable networks. In expectation that competition in the video programming and distribution markets would develop, Congress provided that the exclusive contract prohibition would expire on October 5, 2002, unless the Commission found that it “continue[d] to be necessary to preserve and protect competition and diversity in the distribution of video programming.” On two previous occasions, first in 2002 and again in 2007, the Commission renewed the prohibition for five years, with the latest extension expiring on October 5, 2012, thus extending the prohibition for ten years beyond the original term established by Congress.

1An exclusive contract results in one cable operator having access to a particular cable-affiliated programming network or networks in a given geographic area, to the exclusion of every other multichannel video programming distributor (“MVPD”) competing in that geographic area.

2The exclusive contact prohibition in section 628(c)(2)(D) pertains only to “satellite cable programming” and “satellite broadcast programming.”See47 U.S.C. 548(c)(2)(D). Both terms are defined to include only programming transmitted or retransmitted by satellite for reception by cable operators.See47 U.S.C. 548(i)(1) (incorporating the definition of “satellite cable programming” as used in 47 U.S.C. 605);id.548(i)(3). In thisOrder,we refer to “satellite cable programming” and “satellite broadcast programming” collectively as “satellite-delivered programming.”

2. We find that a preemptive prohibition on exclusive contracts is no longer “necessary to preserve and protect competition and diversity in the distribution of video programming” considering that a case-by-case process will remain in place after the prohibition expires to assess the impact of individual exclusive contracts. In upholding the Commission's last extension of the prohibition in 2007, the United States Court of Appeals for the DC Circuit (“DC Circuit”) noted changes in the marketplace since 1992 and stated its expectation that if the market continued to evolve in this manner, “the Commission will soon be able to conclude that the prohibition is no longer necessary to preserve and protect competition and diversity in the distribution of video programming.” As discussed below, because the current market presents a mixed picture (with the cable industry now less dominant at the national level than it was when the exclusive contract prohibition was enacted, but prevailing concerns about cable dominance and concentration in various individual markets), we find that extending a preemptive ban on exclusive contracts sweeps too broadly. Rather, this mixed picture justifies a case-by-case approach in applying our program access rules (consistent with the case-by-case inquiries we undertake in the terrestrial programming and program carriage contexts), with special account taken of the unique characteristics of Regional Sports Network (“RSN”) programming. In addition to allowing us to assess any harm to competition resulting from an exclusive contract, this case-by-case approach will also allow us to consider the potentially procompetitive benefits of exclusive contracts in individual cases, such as promoting investment in new programming, particularly local programming, and permitting MVPDs to differentiate their service offerings. Accordingly, consistent with Congress's intention that the exclusive contract prohibition would not remain in place indefinitely and its finding that exclusive contracts can have procompetitive benefits in some markets, we decline to extend the preemptive prohibition beyond its October 5, 2012 sunset date.

3. We recognize that the potential for anticompetitive conduct resulting from vertical integration between cable operators and programmers remains a concern. For example, in some markets, vertical integration may result in exclusive contracts between cable operators and their affiliated programmers that preclude competitors in the video distribution market from accessing critical programming needed to attract and retain subscribers and thus harm competition. While the amount of satellite-delivered, cable-affiliated programming among the most popular cable networks has declined since 2007, some of that programming may still be critical for MVPDs to compete in the video distribution market. Congress has provided theCommission with the authority to address exclusive contracts on a case-by-case basis. We thus conclude that, in the context of present market conditions, such an individualized assessment of exclusive contracts in response to complaints is a more appropriate regulatory approach than the blunt tool of a prohibition that preemptively bans all exclusive contracts between satellite-delivered, cable-affiliated programmers and cable operators. This case-by-case consideration of exclusive contracts involving satellite-delivered, cable-affiliated programming will mirror our treatment of terrestrially delivered, cable-affiliated programming, including the establishment of a rebuttable presumption that an exclusive contract involving a cable-affiliated RSN has the purpose or effect prohibited in section 628(b) of the Act. As demonstrated by our recent actions on complaints involving withholding of terrestrially delivered, cable-affiliated programming, the Commission is committed to exercising its authority under section 628 of the Act to require cable-affiliated programmers to license their programming to competitors in appropriate cases.3

3 See Verizonv.MSG/Cablevision (Bureau Order), Order, 26 FCC Rcd 13145 (MB 2011),affirmed, Verizon v. MSG/Cablevision (Commission Order),Memorandum Opinion and Order, 26 FCC Rcd 15849 (2011);AT&Tv.MSG/Cablevision (Bureau Order),Order, 26 FCC Rcd 13206 (MB 2011),affirmed, AT&Tv.MSG/Cablevision (Commission Order),Memorandum Opinion and Order, 26 FCC Rcd 15871 (2011),appeal pending sub nom. Cablevision Sys. Corp. et al.v.FCC,No. 11-4780 (2nd Cir.). In addition, where vertical integration occurs as a result of a transaction involving the transfer of Commission licenses, we have authority under section 310(d) to impose conditions that address potential competitive harms that might result from such integration.See, e.g., Comcast/NBCU Order,Memorandum Opinion and Order, 26 FCC Rcd 4238 (2011).

4. In addition to case-by-case adjudication, we expect that additional factors will mitigate the risk of any potentially adverse impact of the expiration of the exclusive contract prohibition on consumers and competition. First, approximately 30 satellite-delivered, cable-affiliated, national networks (accounting for 30 percent of all such networks) and 14 satellite-delivered, cable-affiliated, RSNs (accounting for over 40 percent of all such RSNs) are subject to program access merger conditions adopted in theComcast/NBCU Orderuntil January 2018. These conditions require Comcast/NBCU to make these networks available to competitors, even after the expiration of the exclusive contract prohibition.4 Second, the record indicates that existing affiliation agreements between programmers and MVPDs require programming covered by the agreement to be made available for the term of the existing agreement despite the expiration of the exclusive contract prohibition. This effectively defers the period that exclusive contracts will begin to be enforced and thus minimizes any potential disruption to consumers that could result from the expiration of the prohibition. Third, in addition to claims under section 628(b) of the Act, additional causes of action under section 628 will continue to apply after expiration of the exclusive contract prohibition, including claims alleging undue influence under section 628(c)(2)(A) and claims alleging discrimination under section 628(c)(2)(B). In particular, nothing in our decision today will alter our treatment of selective refusals to license, whereby a satellite-delivered, cable-affiliated programmer refuses to license its content to a particular MVPD (such as a new entrant or satellite provider) while simultaneously licensing its content to other MVPDs competing in the same geographic area. Even after the expiration of the exclusive contract prohibition, such conduct will remain a violation of the discrimination provision in section 628(c)(2)(B) of the Act, unless the cable-affiliated programmer can establish a legitimate business reason for the conduct in response to a program access complaint challenging the conduct. Fourth, we will continue to monitor the video marketplace. If the expiration of the exclusive contract prohibition, combined with future changes in the competitive landscape, result in harm to consumers or competition, we have statutory authority pursuant to section 628(b) of the Act to take remedial action by adopting rules to address such concerns.

4These conditions provide that, if “negotiations fail to produce a mutually acceptable set of price, terms, and conditions” for a carriage agreement with one or more Comcast-controlled networks, an MVPD or bargaining agent may “submit [the] dispute to commercial arbitration.”Comcast/NBCU Order,26 FCC Rcd at 4259-62, paragraphs 49-59 and 4358, Condition II. Each party is required to submit a “final offer * * * in the form of a contract for carriage” for a period of three years.Id.at 4365, Condition VII.A.13. The arbitrator must “choose the final offer of the party which most closely approximates the fair market value of the programming carriage rights at issue.”Id.at 4366, Condition VII.B.4. Following the decision of the arbitrator, “the parties shall be bound by the final offer chosen by the arbitrator.”Id.at 4367, Condition VII.B.11;see also id.at 4364, Condition VII.A.1 (stating that the arbitration will “determine the terms and conditions of a new agreement”). By requiring Comcast-controlled networks to enter into arbitration with a requesting MVPD to determine the price, terms, and conditions of a new carriage agreement, these conditions require Comcast-controlled networks to make their programming available to all requesting MVPDs and thus preclude any Comcast-controlled network from enforcing an exclusive contract, including in regions where Comcast does not operate its cable systems.See id.at 4261, paragraph 55 (explaining that these conditions apply to the benefit of all MVPDs, “not just those that compete directly with Comcast”). Our decision to decline to extend the exclusive contract prohibition beyond its sunset date does not impact our analysis in theComcast/NBCU Orderconcluding that these conditions were necessary to curb Comcast's anticompetitive exclusionary program access strategies that might result from the transaction. In that proceeding, based on an extensive factual record in the context of an adjudication, the Commission found MVPDs would be “substantially harm[ed]” without Comcast-NBCU's suite of local, regional, and national programming, and that an “anticompetitive exclusionary program access strategy would often be profitable for Comcast.”Comcast/NBCU Order,26 FCC Rcd at 4254, paragraph 37 (footnotes omitted) and 4257-58, paragraph 44.

5. We also take related actions herein to amend our rules pertaining to subdistribution agreements, common carriers, and Open Video Systems (“OVS”) to reflect the expiration of the exclusive contract prohibition. Further, we modify merger conditions pertaining to exclusive contracts adopted in theLiberty Media Orderto conform to our revised rules. In addition, we revise our procedural rules to (i) provide for a 45-day answer period for all complaints alleging a violation of section 628(b), regardless of whether the complaint involves satellite-delivered or terrestrially delivered programming; and (ii) establish a six-month deadline (calculated from the date of filing of the complaint) for the Media Bureau to act on a complaint alleging a denial of programming.

6. In theOrder on Reconsiderationin MB Docket No. 07-29, we (i) affirm the expanded discovery procedures for program access complaints adopted in the2007 Extension Order;(ii) modify the standard protective order for use in program access complaint proceedings to include a provision allowing a party to object to the disclosure of confidential information based on concerns about the individual seeking access; and (iii) clarify that a party may object to any request for documents that are protected from disclosure by the attorney-client privilege, the work-product doctrine, or other recognized protections from disclosure.

II. Report and Order in MB Docket No. 12-68 et al. A. Background

7. In areas served by a cable operator, section 628(c)(2)(D) generally prohibits exclusive contracts for satellite cable programming or satellite broadcast programming between any cable operator and any cable-affiliatedprogramming vendor.5 The exclusive contract prohibition applies to all satellite-delivered, cable-affiliated programming and preemptively bans all exclusive contracts for such programming with cable operators, regardless of whether the withholding of particular programming would impact competition in the marketplace. As mentioned above, the exclusive contract prohibition applies only to programming that is delivered via satellite; it does not apply to programming that is delivered via terrestrial facilities. Under the statute and our implementing rules, an exclusive contract is permissible if a cable operator or cable-affiliated programmer obtains prior approval by demonstrating to the Commission that the contract serves the public interest. Congress thus recognized that some exclusive contracts may serve the public interest by providing offsetting benefits to the video programming market or assisting in the development of competition among MVPDs.

5In unserved areas, Congress adopted aper seprohibition on exclusive contracts between cable operators and satellite-delivered, cable-affiliated programmers. 47 U.S.C. 548(c)(2)(C). Unlike the exclusive contract prohibition in served areas, the exclusive contract prohibition in unserved areas is not subject to a sunset provision and is unaffected by thisOrder.

8. Congress also provided that the exclusive contract prohibition would sunset after ten years (on October 5, 2002), unless the Commission found that it “continue[d] to be necessary to preserve and protect competition and diversity in the distribution of video programming.” On two previous occasions, first in 2002 and again in 2007, the Commission found that the prohibition remained necessary and thus renewed it for an additional five-year term on each occasion, with the latest extension expiring on October 5, 2012. In issuing the latest extension, the Commission recognized that “Congress intended for the exclusive contract prohibition to sunset at a point when market conditions warrant” and specifically “caution[ed] competitive MVPDs to take any steps they deem appropriate to prepare for the eventual sunset of the prohibition, including further investments in their own programming.” The DC Circuit upheld the Commission's decision, characterizing the developments in the marketplace as a “mixed picture” and deferring to the Commission's analysis. The court expressed an expectation, however, that at the next review “the Commission will weigh heavily Congress's intention that the exclusive contract prohibition will eventually sunset.”

9. On March 20, 2012, the Commission adopted and released anNPRMinitiating a third review of the necessity of the exclusive contract prohibition. TheNPRMpresented data on the current state of competition in the video distribution market and the video programming market and invited commenters to submit more recent data or empirical analyses.6 TheNPRMsought comment on whether current conditions in the video marketplace support retaining, sunsetting, or relaxing the exclusive contract prohibition. No commenter challenged the accuracy of the data set forth in theNPRM.

6 See id.at 3424-30, paragraphs 21-29 and 3473-87, Appendices A-C.

B. Discussion

10. For the reasons discussed below, we decline to extend the exclusive contract prohibition beyond its October 5, 2012 sunset date. First, we review marketplace developments since 2007 and conclude that, because the current market presents a mixed picture (with the cable industry now less dominant at the national level than it was when the exclusive contract prohibition was enacted, but prevailing concerns about cable dominance and concentration in various individual markets), a preemptive ban on exclusive contracts sweeps too broadly and is no longer “necessary to preserve and protect competition and diversity in the distribution of video programming” considering that a case-by-case process will remain in place after the prohibition expires to assess the impact of individual exclusive contracts. Second, we describe the case-by-case process that will remain after sunset of the preemptive ban to address competitive harms that may arise in connection with exclusive contracts, including a 45-day period for answering a section 628(b) complaint and the establishment of a rebuttable presumption that an exclusive contract involving a satellite-delivered, cable-affiliated RSN has the purpose or effect prohibited in section 628(b). We also explain how addressing exclusive contracts on a case-by-case basis comports with the First Amendment. Third, we describe necessary amendments to our rules pertaining to subdistribution agreements, common carriers, and OVS and to merger conditions pertaining to exclusive arrangements adopted in theLiberty Media Orderto reflect the expiration of the exclusive contract prohibition.

1. Expiration of the Exclusive Contract Prohibition a. Standard of Review

11. Congress provided that the exclusive contract prohibition would expire on October 5, 2002, unless the Commission found that it continued to be “necessary” to preserve and protect competition and diversity in the distribution of video programming. The Commission has previously determined that the exclusive contract prohibition continues to be “necessary” if, in the absence of the prohibition, competition and diversity in the distribution of video programming would not be preserved and protected. The DC Circuit has upheld the Commission's interpretation of the term “necessary” and has also ruled that the Commission's analysis of the prohibition is appropriately focused on harm to competition and consumers, not harm to competitors.

12. The Commission has also explained that the sunset provision “creates a presumption that the rule will sunset” unless the Commission finds that it continues to be necessary.7 Moreover, the Commission has explained that, because the exclusive contract prohibition has been in effect since 1992, “it is difficult to obtain specific factual evidence of the impact on competition in the video distribution market if the prohibition were lifted.” Accordingly, we rely on “economic theory and predictive judgment[s] in addition to specific factual evidence in reaching our decision concerning the continued need for the exclusive contract prohibition.”

7Commenters' suggestion that vertically integrated cable operators bear the burden of demonstrating that the prohibition is no longer necessary finds no basis in the statute.

b. Analysis

13. In evaluating whether the exclusive contract prohibition continues to be necessary, the Commission has previously examined data on the status of competition in the video programming market and the video distribution market. The Commission presented extensive data in theNPRMon these issues, which presented a mixed picture, and invited commenters to submit more recent data or empirical analyses. While no commenter disputed the accuracy of the data presented in theNPRM,updated information in the record requires some modifications to these data. In the discussion below and in Appendix E, we present the most recent data available on the market shares of cable operators and other MVPDs in the video distribution market,which differ only slightly from the data presented in theNPRM,and continue to show a mixed picture. In addition, in the discussion below and in Appendices F and G, we update the data presented in theNPRMon cable-affiliated networks to reflect (i) Comcast/NBCU's sale of its interest in A&E Television Networks, LLC (“A&E”); and (ii) information in the record provided by Cablevision, Comcast, and Time Warner Cable (“TWC”) regarding their affiliation with RSNs and whether those RSNs are satellite-delivered or terrestrially delivered. Appendices E through G are available at:http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-12-123A1.pdf.

14. Based on similar data and other record evidence, the Commission in past extension decisions has analyzed whether, in the absence of the exclusive contract prohibition, cable-affiliated programmers would have the incentive and the ability to harm competition and diversity in the distribution of video programming by entering into exclusive contracts. We undertake the same analysis here. Below, we consider the “incentive” element followed by the “ability” element.

(i) Incentive

15. In evaluating whether cable-affiliated programmers retain the incentive to enter into exclusive contracts, the Commission analyzes whether there continues to be an economic rationale for exclusivity. The Commission has explained that, if a vertically integrated cable operator enters into an exclusive arrangement for affiliated programming, it can recoup profits lost at the upstream level (i.e.,lost licensing fees and advertising revenues) by increasing the number of subscribers of its downstream MVPD division. The Commission has also explained that, particularly where rival distributors are limited in their market shares, a cable-affiliated programmer will be able to recoup a substantial amount of the revenues foregone by pursuing exclusivity. In the2007 Extension Order,the Commission concluded that vertically integrated cable programmers retained the incentive to enter into exclusive contracts for satellite-delivered programming.

16. As discussed below, the record here shows a mixed picture, indicating that vertically integrated cable programmers may still have an incentive to enter into exclusive contracts for satellite-delivered programming in many markets. As the Commission explained previously, the profitability of exclusivity increases as the number of subscribers controlled by the vertically integrated cable operator increases. In past extension decisions, the Commission has analyzed the aggregate market share of cable operators on a national and regional basis to assess the profitability of exclusivity. In the2007 Extension Order,the Commission found that the cable industry's share of MVPD subscribers nationwide had decreased since 2002 from 78 percent to approximately 67 percent, but that this market share was still sufficient to make exclusivity a profitable strategy. Here, the record evidence indicates that the cable industry's share of MVPD subscribers nationwide has continued to decrease, from 67 percent in 2007 to 57.4 percent today, which indicates that vertically integrated cable operators as a whole—and considered solely on a national basis—have a reduced incentive to enter into exclusive contracts, compared to 2007.

17. On a regional basis, however, there remain markets where cable operators have a substantial share of subscribers. In the2007 Extension Order,the Commission noted that the cable industry's share of MVPD subscribers in certain Designated Market Areas (“DMAs”) remained above or near the 78 percent level that the Commission previously found in 2002 was sufficient to make exclusivity a profitable strategy. Here, the record indicates that the cable industry's share of MVPD subscribers in certain DMAs remains above or near both the 67 percent level and the 78 percent level that the Commission has previously found to be sufficient to make exclusivity a profitable strategy. Although the number of DMAs in which the cable industry's share of MVPD subscribers exceeds these benchmarks has decreased since 2007, there are still a considerable number of DMAs in which concerns about competition remain.

18. Moreover, we note that data submitted in the record by cable operators indicate that clustering has increased since 2007. The Commission has, in past orders, observed that clustering may increase a cable operator's incentive to enter into exclusive contracts for regional programming. In the2007 Extension Order,the Commission noted that Comcast passed more than 70 percent of television households in 30 Designated Market Areas (DMAs) and TWC passed more than 70 percent of television households in 23 DMAs. Based on the 2011 data provided by the cable operators, Comcast now passes more than 70 percent of television households in [REDACTED] DMAs and TWC passes more than 70 percent of television households in [REDACTED] DMAs.8 These calculations employ data from Nielsen on television households in each DMA and homes passed data provided by the cable operators. In the2007 Extension Order,the Commission also noted that the collective market share of MVPDs that compete with incumbent cable operators in many DMAs where cable multiple system operators (“MSOs”) have clusters is far less than their collective nationwide market share. The same holds true today.

8We also received data from Cablevision showing [REDACTED] DMAs in which Cablevision passes more than 70 percent of television households.

19. In addition to this data, we note that real-world evidence indicates that in some markets cable-affiliated programmers may have an incentive to enter into exclusive contracts that can harm competition. As noted in the previous extension decisions as well as in the2010 Program Access Order,vertically integrated cable operators have withheld from competitors certain terrestrially delivered networks, which are not subject to the exclusive contract prohibition. Most recently, Cablevision and MSG withheld the terrestrially delivered MSG HD and MSG+ HD RSNs from AT&T and Verizon.

20. Because the record before us indicates that there may be certain region-specific circumstances where vertically integrated cable operators may have an incentive to withhold satellite-delivered programming from competitors,9 we believe that a case-by-case approach authorized under other provisions of the Act—rather than a preemptive ban on exclusive contracts—will adequately address competitively harmful conduct in a more targeted, less burdensome manner. We disagree with commenters to the extent they imply that Congress intended the prohibition to expire only once vertically integrated cable operators no longer have any incentive to enter into exclusive contracts. Such an interpretationcontradicts Congress's recognition that exclusive contracts do not always harm competition and can have procompetitive benefits in some cases.

9We also note that, in past extension decisions, the Commission has noted that increases in horizontal consolidation among vertically integrated cable operators means they will reap a greater portion of the gains from exclusivity, thereby increasing the incentive to enter into exclusive contracts. Our most recent data indicates that the percentage of MVPD subscribers receiving their video programming from one of the four largest vertically integrated cable operators today is 42.7 percent, an increase from the2002 Extension Order(34 percent), but a decrease from the2007 Extension Order(54-56.75 percent). While the record evidence demonstrates that the data pertaining to horizontal consolidation have remained consistent with 2002 levels, this factor is outweighed by other marketplace considerations favoring elimination of the preemptive ban.

(ii) Ability

21. In addition to an incentive to enter into exclusive contracts, we also assess the “ability” of vertically integrated cable operators to use exclusivity to harm competition and diversity in the distribution of video programming. In this regard, the Commission considers whether satellite-delivered, cable-affiliated programming remains programming for which there are no good substitutes and are necessary for competition. In previous extension orders, the Commission found that there were no good substitutes for a significant amount of satellite-delivered, cable-affiliated programming, and that such programming remained necessary for viable competition in the video distribution market. Accordingly, the Commission concluded that cable-affiliated programmers retained “the ability to favor their affiliated cable operators over competitive MVPDs such that competition and diversity in the distribution of video programming would not be preserved and protected absent the rule.” In reaching this conclusion, the Commission explained that “[w]hat is most significant to our analysis is not the percentage of total available programming that is vertically integrated with cable operators, but rather the popularity of the programming that is vertically integrated and how the inability of competitive MVPDs to access this programming will affect the preservation and protection of competition in the video distribution marketplace.”

22. We recognize that some commenters contend that the data in theNPRMindicate little change since 2007 in the amount of satellite-delivered, cable affiliated programming among the most popular cable networks. These claims, however, do not consider four developments that impact significantly our determination as to whether a preemptive prohibition remains necessary under the terms of the statute.

23. First, as explained in theNPRM,the Commission in 2011 granted the application of Comcast, General Electric Company (“GE”), and NBCU to assign and transfer control of broadcast, satellite, and other radio licenses from GE to Comcast. Reviewing that vertical integration pursuant to section 310(d), the Commission approved the transaction with conditions, including a program access condition requiring Comcast/NBCU to make networks it controls (the “Comcast-controlled networks”)10 available to competitors. As set forth in Appendices F and G, we estimate that 30 satellite-delivered national networks and 14 satellite-delivered RSNs are Comcast-controlled networks. Comcast/NBCU is subject to these conditions until January 2018. In other words, even after the exclusive contract prohibition expires, these Comcast-controlled networks could not be subject to an exclusive contract until January 2018. For that reason, we find it appropriate to exclude the Comcast-controlled networks when assessing the continued need for a preemptive ban.11

10As discussed in theNPRM,the program access merger conditions apply to “C-NBCU Programmers.” Whether a network qualifies as a “C-NBCU programmer” is a fact-specific determination. As described in theNPRM,with the exception of the iN DEMAND networks, we assume that any network in which Comcast or NBCU holds a 50 percent or greater interest is a “C-NBCU Programmer” subject to these conditions. We refer to these networks as “Comcast-controlled networks.” We refer to other networks in which Comcast or NBCU holds a less than 50 percent interest as “Comcast-affiliated networks,” which we assume for purposes of the estimates in thisOrderare not “C-NBCU Programmers” subject to the program access merger conditions adopted in theComcast/NBCU Order,but are subject to the program access rules, including the exclusive contract prohibition. No commenter opposed this proposed distinction between Comcast-controlled and Comcast-affiliated networks as set forth in theNPRM.In addition, given Comcast's previous statements that it cannot control decisionmaking at iN DEMAND, theNPRMproposed to consider iN DEMAND as Comcast-affiliated, but not Comcast-controlled. No commenter opposed this characterization, thus we consider the iN DEMAND networks to be Comcast-affiliated, but not Comcast-controlled, for purposes of the estimates in thisOrder.Nothing in thisOrdershould be read to state or imply any position as to whether any particular network qualifies or does not qualify as a “C-NBCU Programmer.”

11Our decision here is consistent with the2011 Program Carriage Order.In that order, the Commission found that the “number of cable-affiliated networks recently increased significantly after the merger of Comcast and NBC Universal, thereby highlighting the continued need for an effective program carriage complaint regime.” In theComcast/NBCU Order,the Commission specifically relied on the program carriage complaint process to address concerns relating to program carriage resulting from the merger. Accordingly, the increase in vertical integration resulting from the Comcast/NBCU transaction was a significant factor in the2011 Program Carriage Order.With respect to program access concerns, however, theComcast/NBCU Orderadopted specific conditions to address these concerns, thus allowing us to exclude the Comcast-controlled networks from consideration here.

24. Some commenters contend, however, that the Commission must consider the Comcast-controlled networks as if they would be impacted by a sunset of the exclusivity prohibition. They claim that, if the Commission declines to extend the prohibition based on an analysis of the market that ignores the Comcast-controlled networks, the Commission will have no vehicle to consider whether the prohibition remains necessary after the Comcast merger conditions expire. We reject these claims. The Commission may exercise its broad rulemaking authority under section 628(b) to adopt rules prohibiting certain exclusive contracts involving cable-affiliated programming if it becomes necessary after these merger conditions expire, based on an assessment of the marketplace at that time.

25. Second, after the Commission released theNPRM,Comcast sold its interest in A&E to A&E's other owners (Disney and Hearst). As a result of this transaction, the regulatory status of the 17 networks owned by A&E changed from cable-affiliated to non-cable-affiliated. As set forth in theNPRM,A&E-owned networks account for four of the Top 20 national cable networks as ranked by average prime-time ratings and three of the Top 20 national cable networks as ranked by subscribership. Thus, the change in the regulatory status of the A&E networks has reduced since 2007 the number of satellite-delivered, cable-affiliated networks among the Top 20 national cable networks ranked by subscribership and by average prime-time ratings.

26. Third, in both the2002 Extension Orderand the2007 Extension Order,the Commission found significant that the subscription premium networks HBO and Cinemax were cable-affiliated. The Commission relied on comments arguing that “first-run programming produced by HBO and other premium networks [is] essential for a competitive MVPD to offer to potential subscribers in order to compete with the incumbent cable operator.” In 2009, however, the Commission approved a transaction resulting in the separation of TWC, a cable operator, from Time Warner Inc., an owner of satellite-delivered, national programming networks, including HBO and Cinemax. As a result, HBO and Cinemax are no longer cable-affiliated. This transaction was also significant because it changed the regulatory status of other cable networks cited by the Commission in the2007 Extension Order(CNN, TBS, and TNT) from cable-affiliated to non-cable-affiliated. In declining to adopt a condition applying the program access rules to Time Warner Inc. post-transaction, the Commission explained that the underlying premise of the program access rules would no longer apply because Time Warner Inc. (a non-cable-affiliated programmer) and TWC would no longer have the incentive to discriminate in favor of each other.

27. Fourth, in the2007 Extension Order,the Commission relied on data indicating that 46 percent of all RSNs were cable-affiliated. These data, however, did not distinguish between terrestrially delivered and satellite-delivered RSNs. As discussed above, the exclusive contract prohibition applies only to programming that is delivered via satellite; it does not apply to programming that is delivered via terrestrial facilities. An exclusive contract involving a terrestrially delivered, cable-affiliated RSN is permitted unless the Commission finds in response to a complaint that it violates section 628(b) of the Act. We, therefore, further refine our prior analysis by distinguishing between cable-affiliated RSNs that are subject to the prohibition (i.e.,RSNs delivered via satellite) and those that are not (i.e.,RSNs delivered via terrestrial means). To that end, the Media Bureau asked the three cable operators that own the greatest number of RSNs (Cablevision, Comcast, and TWC) whether their RSNs are satellite-delivered or terrestrially delivered. The responses reveal that a little fewer than half (43 percent) of all cable-affiliated RSNs are terrestrially delivered and therefore beyond the scope of the exclusive contract prohibition.12 The remaining 57 percent of cable-affiliated RSNs are satellite-delivered, but over 43 percent of these RSNs are Comcast-controlled and thus subject to program access merger conditions until January 2018. As set forth in Appendix G, the data demonstrate the following regarding the 108 RSNs (both cable-affiliated and non-cable-affiliated) available today: (i) 52 RSNs (48 percent) are not cable-affiliated; (ii) 24 RSNs (22 percent) are cable-affiliated but terrestrially delivered and therefore subject to a case-by-case process under section 628(b);13 (iii) 14 RSNs (13 percent) are cable-affiliated and satellite-delivered, but are also Comcast-controlled, and therefore subject to program access merger conditions until January 2018 that require Comcast to make these networks available to competitors;14 and (iv) only 18 RSNs (17 percent) are cable-affiliated, satellite-delivered, and not Comcast-controlled, and therefore potentially impacted by the expiration of the exclusive contract prohibition.15

12The Media Bureau did not request information from Bright House or Cox regarding whether their affiliated RSNs are satellite-delivered or terrestrially delivered. This includes the following four RSNs: Bright House Sports Network, Bright House Sports Network HD, Cox Sports Television, and Cox Sports Television HD. Moreover, Comcast and TWC did not provide information regarding whether the following affiliated RSNs are satellite-delivered or terrestrially delivered: Comcast SportsNet Houston, Comcast SportsNet Houston HD, Midco Sports Network, Midco Sports Network HD, Time Warner Cable SportsNet, Time Warner Cable SportsNet HD, Time Warner Cable Deportes, and Time Warner Cable Deportes HD. For purposes of this analysis, and with the exception of Cox-4 and Cox-4 HD (which the Commission has previously found are terrestrially delivered), we assume that all cable-affiliated RSNs for which we do not have information are satellite-delivered and therefore subject to the exclusive contract prohibition. Thus, our estimate that 43 percent of cable-affiliated RSNs are terrestrially delivered is conservative.

13Four of these 24 terrestrially delivered, cable-affiliated RSNs are Comcast-controlled RSNs and therefore also subject to program access merger conditions until January 2018 that require Comcast to make these networks available to competitors.

14As discussed above, our decision to decline to extend the exclusive contract prohibition beyond its sunset date does not impact our analysis in theComcast/NBCU Orderconcluding that the program access merger conditions adopted therein were necessary to curb Comcast's anticompetitive exclusionary program access strategies that might result from the transaction.

15Even with respect to these 18 RSNs, TWC has stated it will make its four RSNs featuring the games of the Los Angles Lakers (Time Warner Cable SportsNet, Time Warner Cable SportsNet HD, Time Warner Cable Deportes, and Time Warner Cable Deportes HD) available to competing MVPDs.

28. Based on the four developments noted above, the record indicates a decrease since 2007 in the amount of satellite-delivered, cable-affiliated programming among the most popular cable networks. In particular, the number of Top 20 national cable networks as ranked by average prime time ratings that are cable-affiliated has fallen from seven in 2007 to one today16 and the number of Top 20 national cable networks as ranked by subscribership that are cable-affiliated has fallen from six in 2007 to three today.17 Moreover, while the Commission in 2007 found that “popular subscription premium networks, such as HBO and Cinemax” were cable-affiliated, those networks are no longer cable-affiliated today. In addition, while the Commission in 2007 relied on data indicating that 46 percent of all RSNs were satellite-delivered and cable-affiliated, this figure is only 17 percent today (not including Comcast-controlled networks, which are subject to program access merger conditions).18

16This number increases to three if the Comcast-controlled national networks are included. In the early 1990s when the exclusive contract prohibition was adopted, 12 of the Top 15 national cable networks as ranked by average prime time ratings were cable-affiliated.

17This number increases to four if the Comcast-controlled national networks are included. In the early 1990s when the exclusive contract prohibition was adopted, 10 of the Top 25 national cable networks as ranked by subscribership were cable-affiliated.

18This percentage increases to 30 percent if the Comcast-controlled RSNs are included.

29. In light of the mixed picture presented by the current MVPD market (including the decline in the amount of satellite-delivered, cable-affiliated programming among the most popular cable networks), we find that a broad, preemptive ban on exclusive contracts is no longer necessary to prevent cable-affiliated programmers from harming competition, considering that a case-by-case process will remain in place after the prohibition expires to assess the impact of individual exclusive contracts. We recognize that some satellite-delivered, cable-affiliated programming, such as certain RSNs, remains necessary for competition and has no good substitutes. However, we do not believe this warrants extension of a preemptive ban on exclusivity when a case-by-case approach can address competitively harmful exclusive contracts on a more targeted basis.

(iii) Conclusion

30. Based on the foregoing, we can no longer conclude that the exclusive contract prohibition remains necessary to preserve and protect competition and diversity in the distribution of video programming considering that a case-by-case process will remain in place after the prohibition expires to assess the impact of individual exclusive contracts. While the record indicates that vertically integrated cable operators may still have the ability and incentive to withhold satellite-delivered, cable-affiliated programming in some markets with the effect of harming competition and diversity, the record also demonstrates a decline since 2007 in the amount of satellite-delivered, cable-affiliated programming among the most popular cable networks. To be sure, absent the prohibition, there may be instances where cable operators enter into exclusive contracts for satellite-delivered, cable-affiliated programming that is necessary for competition and has no good substitutes. But Congress has provided the Commission with the authority to address such contracts on a case-by-case basis after the expiration of the prohibition. Specifically, sections 628(b), 628(c)(1), and 628(d) of the Act grant the Commission broad authority to prohibit “unfair acts” of cable operators and their affiliated programmers that have the “purpose or effect” of “hinder[ing] significantly or prevent[ing]” any MVPD from providing “satellite cable programming or satellite broadcast programming to subscribers or consumers.” In addition, the Commission has authority (i) pursuant to section 628(c)(2)(B) of the Act to prohibit discrimination in the prices, terms, and conditions for sale of satellite-delivered, cable-affiliated programming among MVPDs; and (ii) pursuant to section 628(c)(2)(A) of theAct to prohibit a cable operator from engaging in undue or improper influence over the decision of its affiliated, satellite-delivered programmer to enter into an exclusive contract. The Commission is committed to using this statutory authority to require cable-affiliated programmers to license programming to competitors in appropriate cases, as demonstrated by our recent actions on complaints involving terrestrially delivered, cable-affiliated RSNs. As demonstrated in those proceedings, a case-by-case approach allows for an individualized assessment of exclusive contracts based on the facts presented in each case.

31. As some commenters note, however, the Commission in previous extension decisions characterized a case-by-case process for addressing exclusive contracts as an inadequate substitute for the “particularized protection” afforded by the exclusive contract prohibition. But the Commission reached that conclusion on a much different factual record. Here, based on the decline during the past five years in the amount of satellite-delivered, cable-affiliated programming among the most popular cable networks, we can no longer conclude that a case-by-case process is insufficient to protect MVPDs from the potential anticompetitive impact of exclusive contracts or that a preemptive ban continues to be warranted.19 Moreover, our recent actions addressing complaints involving terrestrially delivered, cable-affiliated RSNs demonstrates the adequacy of a case-by-case process.

19The Commission's conclusions in theComcast/NBCU Orderdo not require a different result. In that proceeding, based on an extensive factual record in the context of an adjudication, the Commission found that the “record evidence supports a finding that without Comcast-NBCU's suite of RSN, local and regional broadcast and national cable programming, other MVPDs likely would lose significant numbers of subscribers to Comcast, substantially harming those MVPDs that compete with Comcast in video distribution.”Comcast/NBCU Order,26 FCC Rcd at 4254, paragraph 37 (footnotes omitted). Moreover, the Commission found that “this anticompetitive exclusionary program access strategy would often be profitable for Comcast.”Id.at 4257-58, paragraph 44. The Commission's findings with respect to that transaction, which involved the nation's largest cable operator both in terms of subscribers and number of cable networks owned, do not compel the same conclusion with respect to all other vertically integrated cable operators. Indeed, the Commission specifically noted that “[a]ll adjudicatory findings are fact specific and based on the evidence in the record in a specific matter.”Id.at 4258, paragraph 45. Moreover, consistent with the case-by-case approach we describe herein, the Commission explained that “[a]n assessment of the consequences of foreclosure of the programming at issue in a particular transaction must be made on a case-by-case basis, considering whether the foreclosure to rival MVPDs of access to the specific programming networks offered by the parties to the transaction likely would result in the loss of subscribers to MVPDs having access.”Id.at 4258, paragraph 45 n. 109.

32. Some commenters note that Congress has already established a case-by-case approach for assessing exclusive contracts involving satellite-delivered, cable-affiliated programming. Specifically, pursuant to section 628(c)(4), a cable operator or a satellite-delivered, cable-affiliated programmer may submit a “Petition for Exclusivity” to the Commission for approval to enforce or enter into an exclusive contract by demonstrating that the contract serves the public interest. Some commenters claim that the Commission could streamline this procedure rather than requiring MVPDs to pursue complaints. We reject this contention. Given the decline during the past five years in the amount of satellite-delivered, cable-affiliated programming among the most popular cable networks, we find no basis to continue to preemptively ban exclusive contracts and to place the burden on cable operators or their affiliated programmers to demonstrate that an exclusive contract serves the public interest before entering into or enforcing the contract. Indeed, relying on the Petition for Exclusivity process to avoid the expiration of the prohibition would mean that the prohibition would never expire, contrary to Congress's direction.

33. We recognize the possibility that the expiration of the exclusive contract prohibition may result in cable operators acquiring additional programming, including “must have” programming, and then entering into exclusive contracts for such programming. We also recognize the possibility that some existing satellite-delivered, cable-affiliated programming may increase in popularity in the future. The record, however, provides no basis on which to predict the likelihood of these developments or their impact on competition. Indeed, such developments seem contrary to current market trends, as discussed above. Given this, extending the prohibition based simply on the chance of a reversal in industry trends would be at odds with Congress' inclusion of a sunset provision. Moreover, even if a marketplace reversal were to occur, the Commission has the tools in place to address these developments, either on a case-by-case basis in response to complaints, which include a rebuttable presumption of “significant hindrance” for RSNs, or by adopting rules pursuant to section 628(b) that prohibit certain types of exclusive contracts involving cable-affiliated programming.20

20Some commenters also speculate that cable operators will enter into exclusive contracts covering a bundle of cable-affiliated networks, which has a more harmful impact on competitors than an exclusive contract involving a single network. Should this occur, however, the Commission will be able to address these situations post-sunset pursuant to the provisions of section 628 that do not sunset. The Commission's conclusions in theComcast/NBCU Orderdo not require a different result. In that proceeding, the Commission found that the “evidence suggests that the overall bundle of NBCU cable networks is critical programming that MVPDs need to offer a competitive service that is attractive to consumers even if no individual network in the bundle were considered `marquee' programming.”Comcast/NBCU Order,26 FCC Rcd at Appendix B, 4395-96, paragraph 46. As discussed above, this conclusion was based on an extensive factual record in the context of an adjudication involving the nation's largest cable operator, both in terms of subscribers and number of cable networks owned, and does not compel the same conclusion with respect to all other vertically integrated cable operators.

c. Additional Factors Weighing in Favor of Expiration of the Exclusive Contract Prohibition

34. We find additional factors also weigh in favor of our decision to decline to extend the prohibition beyond its sunset date. First, as both Congress and the Commission have specifically recognized, exclusive contracts may result in the procompetitive benefit of increasing investment in programming in some cases, thereby promoting competition and diversity in the video programming market. Vertically integrated cable operators and cable-affiliated programmers note that expiration of the prohibition will provide cable operators with an incentive to increase their investment in programming ventures, particularly local and regional programming. They also claim that exclusivity is critical to programmers for the following reasons: (i) A new service with limited interest may be able to gain carriage only if it can provide a distributor with exclusive carriage; (ii) exclusivity may be critical for a niche network that targets a particular audience; (iii) a programmer may wish to enter into an exclusive arrangement to reduce or share the risks with a cable operator; and (iv) exclusivity enhances the incentive of the cable operator to market and publicize the network. Moreover, expiration of the exclusive contract prohibition may also encourage other MVPDs or non-MVPD-affiliated programmers to create programming to counteract any exclusives involving cable operators, thereby leading to more competition and diversity in the video programming market. The Commission recognized this benefit in the2010 Program Access Order,explaining that,“[i]f particular programming is replicable, our policies should encourage MVPDs or others to create competing programming, rather than relying on the efforts of others, thereby encouraging investment and innovation in programming and adding to the diversity of programming in the marketplace.”

35. Some MVPDs question the potential for procompetitive benefits resulting from exclusive contracts involving satellite-delivered, cable-affiliated programming, noting that exclusive contracts involving non-cable-affiliated programmers are rare and that the Commission previously noted an increase in programming networks over time despite the exclusive contract prohibition. Nevertheless, Congress specifically recognized the benefits of exclusive contracts in some cases, as demonstrated by its mandate that the Commission allow the exclusive contract prohibition to expire when it is no longer “necessary” to preserve and protect competition and diversity in the video distribution market.

36. Second, the Commission has recognized that exclusive contracts may result in the procompetitive benefit of allowing MVPDs to differentiate their service offerings.21 To be sure, the issue of whether the procompetitive benefits of product differentiation outweigh the anticompetitive harms is a fact-specific determination best handled on a case-by-case basis. But, at least in some markets, it is possible that consumers will benefit from increased competition in the video distribution market when MVPDs differentiate their service offerings and thereby invite competitive countermeasures from their rivals.22

21Some commenters claim that exclusivity will harm consumers because no consumer could access the full range of programming available without having to subscribe to more than one service. This argument, however, is not specific to cable-affiliated programming. Rather, it is an argument against any type of exclusive programming arrangement, including those involving non-cable-affiliated programming that is not covered by the exclusive contract prohibition. Moreover, despite this alleged drawback of exclusivity, Congress has specifically found that exclusive contracts may have countervailing procompetitive benefits in some cases.

22The Commission in the2007 Extension Orderfound that the ability of MVPDs to engage in competitive countermeasures did not mitigate the impact of being unable to offer essential programming, as demonstrated by the material adverse impact on competition in the video distribution market resulting from withholding of RSNs in San Diego and Philadelphia. For the reasons discussed herein, given market developments since 2007, we find no basis to assume that the anticompetitive impact of exclusive arrangements always outweighs the procompetitive benefits.

37. Third, declining to extend the exclusive contract prohibition beyond its sunset date and relying instead on a case-by-case process is consistent with our First Amendment obligations and promotes the goals of Executive Order 13579 and the Commission's plan adopted consistent with the Executive Order, whereby the Commission analyzes rules that may be outmoded, ineffective, insufficient, or excessively burdensome and determines whether any such regulations should be modified, streamlined, or repealed. In today's marketplace, a nuanced, narrower, case-by-case approach that meets the statutory objectives is more appropriate than the blunt regulatory tool of a prohibition that preemptively bans all exclusive contracts and places the burden on the proponent of exclusivity to demonstrate how the exclusive contract serves the public interest before entering into or enforcing the contract.

38. Fourth, our action here promotes regulatory parity by treating satellite-delivered and terrestrially delivered programming similarly. Specifically, we will now consider all exclusive contracts involving cable-affiliated programming on a case-by-case basis in response to complaints, regardless of whether the programming is satellite-delivered or terrestrially delivered. Nothing in the record here establishes any basis for continuing to apply a preemptive prohibition to exclusive contracts involving satellite-delivered, cable-affiliated programming while assessing exclusive contracts involving terrestrially delivered, cable-affiliated programming on a case-by-case basis. Achieving parity in treatment between these two types of programming will remove any uncertainty and confusion surrounding which regulatory approach (preemptive prohibition or case-by-case) applies. In addition, parity in regulatory treatment will help to ensure that business reasons, rather than regulatory distinctions, drive the decision whether to deliver programming by satellite or terrestrial means.

39. Fifth, we expect that any enforcement of exclusive contracts in the near term will be limited by the terms of existing affiliation agreements. In theNPRM,the Commission sought comment on which of two alternative scenarios would occur after the expiration of the exclusive contract prohibition: (i) existing affiliation agreements allow programmers to terminate or modify their existing agreements immediately on the effective date of the sunset and to instead enter into exclusive contracts with cable operators; or (ii) existing affiliation agreements require programmers to continue to provide their programming to MVPDs for the duration of the term of the affiliation agreements despite the expiration of the exclusive contract prohibition. In response, no commenter claimed that expiration of the exclusive contract prohibition wou