In a decision carried by the Federal Communications Commission’s Democratic members, so-called “niche” networks and independent television channels could have an easier road to carriage on cable and direct broadcast satellite systems across the U.S.
The FCC on Thursday (Sept. 29) issued a Notice of Proposed Rulemaking that would effectively prohibit “the use of certain clauses in pay-TV programming distribution contracts that impede carriage of independent and diverse programming.”
Specifically, the proposed rules would prevent pay-TV providers such as MSOs and DBS providers from including so-called “unconditional” most-favored nation (MFN) and “unreasonable” alternative distribution method (ADM) clauses in their contracts with independent programmers.
As described by the Commission, An “unconditional” MFN clause entitles a pay-TV provider to receive favorable contract terms that a programmer has given to another programming distributor, without requiring the pay-TV provider to assume any corresponding obligations from the other distribution agreement.
Meanwhile, the FCC defines an ADM clause as one that generally prohibits or limits a programmer from putting its programming on alternative video distribution platforms, such as online platforms.
The FCC seeks comment on the specific kinds of ADM clauses that it should prohibit as unreasonable.
The proposed rules are a result of the input received from an inquiry the FCC opened earlier this year into the state of diversity in the video programming market.
The Commission held two workshops on the issue to examine the state of the video marketplace, challenges faced by distributors of video programming, and marketplace obstacles that affect the provision of independent and diverse programming to consumers.
With Republican Commissioners Ajit Pai and Michael O’Rielly dissenting, the proposed rules will now move to the NPRM stage.
For the majority – FCC Chairman Tom Wheeler and Democratic Commissioners Mignon Clyburn and Jessica Rosenworcel – the proposed rules as they see them “would help to remove barriers to competition, diversity, and innovation in the video marketplace, giving independent and niche programmers greater ability to reach their intended audiences.”
They also claim that the proposed rules would also give consumers more choice in the sources and variety of their video programming, greater flexibility in how they access program content, and lower prices for their video programming services.
Pai feels otherwise. In a lengthy dissenting opinion, Pai slammed his colleagues for presenting what amount to an Order, titled as a Notice.
“This is a Notice littered with statements indicating that the Commission has already decided many of the most important issues about which we are seeking comment,” he said. “This is a Notice that doesn’t include many questions that could yield answers the Commission might find inconvenient, and this is a Notice that I cannot support.”
He added that, “too often, Notices are now one-sided documents that leave little doubt that the Commission has already made up its mind on the issues about which it is purporting to seek the public’s input.”
Pai questioned the FCC’s legal authority to adopt the proposals set forth in the Notice, and that the proposal “could give rise to serious constitutional difficulties.”
He continued, “We need to consider fully the potential results of Commission action here. Remember that MVPDs are under no legal obligation to carry any particular independent programmers in the first place. So, we have to consider whether banning unconditional MFN and certain types of ADM provisions would make it less likely that independent programmers would be able to secure carriage by MVPDs. Would banning such contract terms make it more likely that those independent programmers already being carried by MVPDs would be dropped? Or, would prohibiting such provisions make it more likely that a large MVPD would insist on exclusive deals with independent programmers, thus limiting these programmers’ reach? In short, would the Commission’s proposals make it easier or harder for independent programmers to gain distribution? Unfortunately, it is evident from the Notice that the Commission has already fixed upon an answer before the record has been compiled.”
ACA PRAISES FCC ORDER
The American Cable Association (ACA) issued a statement following the FCC’s adoption of the NPRM that praised the Commission’s efforts.
American Cable Association President/CEO Matthew M. Polka specifically saluted Commissioner Clyburn “for her long-term efforts to get the FCC to consider industry practices that make it difficult for independent and diverse programming to gain access on small cable systems.”
Polka added, “It is undeniable that large programmers and broadcasters require small cable operators to carry dozens of unwanted networks that hog limited bandwidth that could be allocated to independent programmers. A small cable operator that wants to carry just one channel from each of the nine largest programmers (which combined own or control more than 100 channels) can trigger an obligation to carry 65 channels. These programmers’ bundling obligations also exhaust small cable operators’ programming budgets, leaving them with no money for independent programmers. Broadcasters’ practices are just as problematic. Some broadcasters refuse to grant retransmission consent unless a small cable operator agrees to set aside channel capacity for carriage of a network ‘yet to be launched.'”
Polka believes that bundling isn’t the only problem in the market.
“Penetration requirements and conditional Most Favored Nation (MFN) clauses employed against small cable operators also prevent them from carrying independent and diverse programming,” he says. “For many years, small cable operators and independent and diverse programmers have recognized that we’re individually stronger when supporting the other in the market, particularly in a market that is increasingly controlled by small number of large players. ACA intends to fully engage on this rulemaking, and it looks forward to working closely with our partners in the independent and diverse programming industry for the benefit of consumers.”