Program Access Adds 5 Years

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Michael Powell is supposed to be a Republican deregulator, but last week the Federal Communications Commission chairman sent big cable scrambling for the defibrillator.

The cause of cable's cardiac episode was the Powell-led agency's decision to extend program-access rules for another five years, rejecting the suggestion by some in the cable camp that the fast-growing direct-broadcast satellite industry should no longer benefit from government-imposed cable largesse.

"The decision ignores the healthy video competition that exists today and creates a disincentive for cable companies to develop and invest in new programming," declared Cablevision System Corp. spokesman Charlie Schueler.

Of the big cable MSOs, Cablevision was probably the most aggressive in seeking elimination of the rules.

Under the rules, cable operators that own satellite-delivered networks have been required to sell those networks to multichannel-video competitors since 1993. The rules, adopted under the Cable Act of 1992, are largely responsible for the birth and explosive growth of the DBS industry.

For Cablevision, the rules mean its Rainbow Media Group programming unit has to sell American Movie Classics, Bravo, The Independent Film Channel (IFC), WE: Women's Entertainment and MuchMusic USA to the parent company's direct competitors.

AOL Time Warner, Comcast Corp. and Cox Communications Corp. all own networks covered by the same must-sell rules.

The ban on exclusivity between a cable operator and a satellite-delivered network that's financially affiliated with that operator was designed to expire on Oct. 5, 2002, unless the FCC determined that an extension was "necessary to preserve and protect competition and diversity."

Powell enticed Republican FCC member Kevin Martin and Democratic FCC member Michael Copps to join him in approving a straightforward extension until 2007. The FCC declined to expand the rules to include MSO-owned networks distributed terrestrially or networks affiliated with non-MSOs, such as the Big Four television networks.

At the FCC's meeting June 13, Powell noted that since 1992, cable's market share has dropped to 78 percent of pay-TV subscribers. But he said cable still had the ability and the incentive to use its stable of marquee programming to harm DBS, terrestrial overbuilders and wireless cable operators.

"Seventy-eight percent remains a phenomenally concentrated market in some regards and needs to be continued to [be] looked at with a scrutinizing eye," Powell said.

Powell said the FCC was concerned that a large proportion of cable subscribers were being served by a shrinking number of MSOs and that the MSOs had built up large regional clusters that could be protected from effective competition by the withholding of programming.

Those market conditions, he said, "increase the probabilities of some forms of anti-competitive behavior that I think the government has an obligation to watch."

Republican FCC member Kathleen Abernathy refused to go along and filed her first dissent since entering office last May.

"Based on the dramatic changes in the marketplace since 1992, I believe that the [exclusivity ban] is over-inclusive and is no longer necessary to preserve and to protect competition to diversity," Abernathy said.

The theory behind the rules was that DBS carriers and other multichannel-video distributors would not ripen into mature competitors without access to cable's national programming networks. Also, it was feared that a lack of competing distributors would stifle innovation in the program-production market.

CHECK THE STATS

Over the last decade, both the distribution and programming markets have experienced rapid growth. At present, DBS carriers serve about 18 million subscribers, up from zero in 1992. The number of programming networks carried by cable and DBS rose from 87 in 1992 to 281 in 2001.

Moreover, cable operators a decade ago were affiliated with 48 percent of the 87 national programming services; today, MSOs have a stake in 73 networks, or 26 percent of networks.

Abernathy said competition to cable at the distribution level and the abundance of networks at the program-acquisition level not controlled by MSOs indicated that the market distortions that originally justified the rules were no longer present.

She said cable-owned networks in 1992 did not have to worry about losing 18 million DBS subscribers and argued it would be irrational for a cable operator to withhold an affiliated network from millions of DBS subscribers in a bid to move the market share needle in its direction.

"Ultimately, I am simply unwilling to predict such irrational market behavior," Abernathy said.

The FCC was entitled to extend the rules based on a legal standard that they were "necessary." The U.S. Court of Appeals for the D.C. Circuit has been striking down FCC rules on grounds the agency has been interpreting "necessary" to mean "beneficial" or "helpful" rather than "indispensable."

REACTION POINTS

Reaction to the ruling ran along predictable lines.

Daniel Brenner, senior vice president of law and regulatory policy at the National Cable & Telecommunications Association, said the trade group was "disappointed that the FCC chose not to eliminate this regulatory relic."

DirecTV Inc. — with 10 million subscribers, the No. 3 MVPD behind AT&T Broadband and Time Warner Cable — said "the five-year extension will be of great benefit to our customers, who will continue to have access to a wide variety of quality programming." DirecTV's satellite service includes 225 channels and local TV signals in 43 markets.

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