News

Disney: FCC Lacks Power

1/04/2008 7:00 PM Eastern

The Federal Communications Commission can’t impose “wholesale” a la carte rules on the cable industry because Congress has not given the agency authority to intervene in the program-distribution market on that scale, The Walt Disney Co. said last Friday.

“In order to adopt a regulation, an agency must have express statutory authority from Congress or properly exercise its ancillary jurisdiction. In this case, no part of the Communications Act … authorizes the FCC to interfere with the substance of carriage negotiations,” Disney said.

Disney filed its comments Friday with the commission in opposition to rules proposed by its chairman, Kevin Martin, that could force cable programmers such as Disney, Viacom, NBC Universal and News Corp. to sell their networks one at a time to cable and satellite TV distributors. Such a mandate to sell networks at wholesale on an “a la carte” basis could later lead to the one-at-a-time sale of channels to consumers, which programmers and cable operators oppose.

Martin is concerned that when cable and satellite-TV providers have to buy programming in bundles, they are buying more than they want and consumers end up paying for channels they don’t wish to receive.

In its comments, Disney said an a la carte requirement on the wholesale level would not ensure retail a la carte “because [cable operators] will continue to use programming tiers to reduce transaction costs and equipment costs and thus keep costs down for their subscribers.”

The FCC has not, however, proposed that when cable operators purchase program on an a la carte basis, they must guarantee that consumers can also buy the channels a la carte.

“In any event, the [FCC] should not promote retail a la carte because it would force consumers to pay more to get less, would decrease program diversity and would harm competition,” Disney said.

Martin has not signaled what the FCC plans to do if programmers tried to evade the a la carte rules by pricing each individual channel so high that it only makes economic sense to buy a bundle of services. Martin has not indicated that he would support regulating the wholesale prices to ensure that a la carte was a realistic option for cable and satellite distributors.

Disney argued that consumer access to tiers of service with dozens of cable channels was beneficial because it delivered the most programming at the lowest cost.

Martin wants the agency to ban cable programmers from “bundling” channels at the wholesale level, so that any pay TV distributor could purchase just ESPN from Disney. Disney makes ESPN available untied to any other cable channel, but no cable operator is allowed to distribute ESPN2 or ESPNEWS without also licensing ESPN.

“The only Disney cable networks that are not available on a standalone basis are complementary ESPN services, such as ESPNEWS and ESPN2, which have never been intended to be offered to [distributors] or subscribers without the flagship ESPN channel,” Benjamin N. Pyne, president of global distribution at Disney Media Networks, said in a statement provided the FCC under penalty of perjury.

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