Martin Eyes Multicast Must-Carry Win

Washington— The Federal Communications Commission is prepared to vote June 21 to impose multicast must-carry requirements on cable operators, setting up cable potentially for its worst policy defeat at the agency since the second round of programming-rate cuts in February 1994.

The agency has twice rejected multicast must-carry, but FCC chairman Kevin Martin has been determined to change that policy. It appears that the 39-year-old Republican leader — appointed by President Bush in March 2005 — has the votes necessary to confer additional must-carry largess on the country’s 1,752 commercial and educational digital-TV stations.

Late Wednesday, the FCC released the June 21 meeting agenda with the multicast must-carry item included. Martin would not have scheduled the vote if he expected to lose. But failure to muster a majority would force Martin to pull the item, raising embarrassing questions about his ability take on big cable and lead an agency with a 3-2 GOP majority.

Under current law, TV stations that elect mandatory cable carriage are entitled to carriage of just one programming service. Multicast must-carry would expand the requirement to include every free programming service a TV station can pack into its digital bandwidth — which could mean six or more programming services using current compression technology.

TV stations are hoping that multicast must-carry will give them access to millions of cable subscribers that are needed to make an ad-supported model economically viable.

“In short, localism is in jeopardy,” 400 independent CBS and NBC affiliates told the FCC in a June 9 filing. “Multicasting allows broadcasters to offer consumers new value, attract new audiences and new advertisers, and thereby strengthen the financial base on which the nation’s free television system relies.”

Cable operators and programmers are expected to take the FCC to court immediately, claiming that a multicast must-carry mandate violates their First Amendment free-speech rights far beyond the original purpose of the original 1992 must-carry law — preserving free TV and promoting the widespread dissemination of information from a multiplicity of sources.

Cable interests are expected to advance the Fifth Amendment argument that multicast must-carry takes private property without just compensation.

In real-world terms, cable programmers are worried that me-too services offered by TV stations would lessen cable-operator demand for their content.

Cable operators also are worried that must carry channels would clog their systems with low-value content not demanded by consumers.

“A requirement that cable companies carry multiple programming streams of each broadcaster, regardless of merit or consumer demand, would place a significant burden on Discovery’s speech without furthering any important government interest, in violation of the First Amendment,” Discovery Communications Inc. told the FCC in a June 13 letter.

The FCC majority is expected to include Martin and Republican Deborah Taylor Tate. Republican Robert McDowell, while telling people he is undecided, is also expected to back Martin.

If McDowell won’t go along, Martin could try to lure one or both FCC Democrats, Michael Copps and Jonathan Adelstein, to his side with commitments to impose new public-interest-programming obligations on commercial broadcasters.

Cable’s modern nadir at the FCC came in February 1994, when the commission slashed cable rates 7% on the heels of a 10% rate cut the prior year. But after cable promised to pave Vice President Al Gore’s information superhighway, the agency gradually eased up on cable — a process encouraged by Capitol Hill Republicans who seized control of the House and Senate in the November 1994 elections.

For more than a decade, cable has enjoyed a benign policy environment at the FCC. The agency has declined to modify leased-access rules to allow Internet-service providers to rent bandwidth; refused to impose ISP open access on cable; established cable-modem service as an unregulated information service; lifted at congressional direction rate controls on expanded basic in March 1999; and ruled that cable voice-over-Internet-protocol service could not be regulated by the states.

Since Martin arrived, the climate has changed, starting with his decision to pressure cable operators to roll out family tiers while continuing to urge the industry to create more a la carte options. The FCC also has under a review a Martin-backed plan to ease phone-company entry into cable markets.

In any multicast must-carry order, the FCC has many issues to resolve, including:

Timing: The agency could time the effective date of the rules to coincide with the congressionally mandated cutoff of analog TV Feb. 17, 2009. The next must-carry/retransmission-consent election begins Oct. 1, 2008. But that may not make sense because the FCC is expected to justify multicast must-carry on the need for a successful digital-TV transition.

Martin has said the availability of digital-TV multicast services would offer an incentive to consumers without pay TV connections to buy digital-TV sets with over-the-air digital tuners before the analog cutoff. Yet broadcasters have said they won’t launch multicast services without guaranteed cable carriage. It shouldn’t be a surprise, then, to see the FCC allow digital-TV stations to exercise multicast-must-carry rights sooner rather than later.

Rate regulation: Cable has argued that multicast must-carry requirements — by adding many more channels to the basic tier, which every consumer must purchase — would result in higher cable rates. To prevent a political backlash to higher cable rates as a result of an FCC policy change, the commission might decide to impose a rate structure that assumes one signal per digital-TV station.

Downconversion: The FCC is expected to launch a notice of proposed rulemaking regarding the ability of cable consumers with only analog equipment to view digital broadcast signals. From the FCC’s perspective, what good would multicast must-carry do if 54% of cable subscribers that are analog-only couldn’t view them? This suggests that the agency might require cable to deliver multicast services in analog from the headend.

On the other hand, requiring the delivery of digital-TV multicast services in analog would take up a lot of cable bandwidth. As a concession to cable, the FCC could let cable deliver digital-TV multicast services only in digital, but require MSOs to inform consumers that additional local digital-TV services are available with the lease of a digital set-top box.