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  • jmago2014 10:23 am on September 8, 2015 Permalink  

    Program Exclusivity, Part III: Haven’t We All Seen This Movie Before? 

    An old adage says that those who do not study history are doomed to repeat it. In the world of communications, I would posit a variation on that adage: Those who have lived through regulatory controversies are doomed to repeat them – forever. As one who has witnessed many regulatory controversies since 1978, I am one of the doomed.

    The current controversy over network non-duplication and syndicated exclusivity provides a prime example. I first encountered this controversy in 1980, when, as a very young litigation attorney for the FCC, I was tapped to help write a brief defending the FCC’s repeal of the syndicated exclusivity rule. Cable operators – and the National Cable & Telecommunications Association (NCTA), which was led by Federal Communications Commission Chairman Tom Wheeler at the time – had contended that the rule was unnecessary and harmful to them, while broadcasters argued they had bargained for the right to attract viewers with popular programming so they could earn the revenues to serve their communities. The rules provided a practical enforcement tool to prevent cable operators from siphoning local stations’ audience share with duplicating programming. In a split vote, the FCC repealed the rule.

    I remember that writing the brief wasn’t easy. I spent many long hours pouring over the record to find every nugget to support the decision. In the end, the Second Circuit deferred to the expert agency’s judgment because the FCC was able to point to two extensive staff reports, multiple studies and several years of investigation to justify the rule’s repeal.

    That could have been the end of the matter, but it was not. Just eight years later, in light of actual competitive damage to broadcasters and real world experience, the FCC reversed course. It reinstated the syndicated exclusivity rule, finding that it served the public interest. This time the cable operators went to court.

    I had less of a role in this second case, but when you read the decision, the agency’s line of defense clearly was very similar. The FCC pointed to new studies and an extensive record to support its new decision. Of course, it was harder, because the Commission was reversing itself – there is a much higher burden for the agency in those situations. But, they were able to meet that burden because they had substantial data to rely on.

    This brings me to the current debate. To reverse itself again (not just on syndicated exclusivity, but now network non-duplication as well) the Commission will need to have a very strong record to show that the rules are unnecessary and/or harmful. I don’t see that here.

    It is not enough to merely say that times have changed. While there may be more types of multichannel video providers today, that also means broadcasters face more competition for local audiences and more fragmentation of their advertising revenues. Nothing has undermined the Commission’s finding, when reinstating the syndex rule, that cable competes with free over-the-air television and has the incentive to erode the exclusivity a local station bargains for. The record shows that the incentive to undermine exclusivity is actually stronger today, because cable actively pursues and earns a greater share of local advertising dollars. And, why else would cable operators like Cablevision be asking not only to eliminate the current rules, but also to have the Commission prohibit broadcasters from even bargaining for local exclusivity? The Commission cannot conclude on this record that cable operators are unlikely to import duplicating distant signals harmful to local stations. That is going to be a problem for today’s FCC litigators if the Commission repeals these rules.

    Others assert that there is no reason for the FCC to enforce exclusivity, as broadcasters can fight for exclusivity through contracts. But stations cannot simply use the courts to enforce contractual rights to exclusivity. Court dockets are already overcrowded, leading to delays in deciding civil cases. Beyond that, it is not clear just what type of private action a station could bring. The likely party importing a duplicating signal, the cable operator, has access to a compulsory license and is not a party to the network/syndicator/station contract. It seems that the only way to stop the duplication would be for the network or syndicator to stop delivering its programming to the duplicating distant station. How would that serve the public? Everybody loses in that scenario.

    Even assuming a station could get into court, the cost of the litigation would be prohibitive. The median cost of civil litigation is around $91,000 and would likely be more here since stations would need lawyers with special expertise. That would drain most stations’ resources for hiring reporters or purchasing updated equipment (in addition to the investments the Commission either requires or urges stations to make to improve accessibility) and could break stations in small markets where revenue margins are very slim. If local service in those markets still matters, the exclusivity rules still matter. The FCC should retain these rules.

    Jane Mago retired as NAB’s General Counsel and Executive Vice President of Legal Affairs last year. She joined NAB in 2004 after a 26-year career at the Federal Communications Commission, where she held many high-level positions including general counsel, chief of the Office of Strategic Planning and Policy Analysis, deputy chief of the Enforcement Bureau and legal advisor to three commissioners.

     
  • jmago2014 12:31 pm on March 11, 2014 Permalink
    Tags: , JSA,   

    Looking to the Law 

    As a General Counsel – now at NAB and formerly of the FCC – I tend to believe that adhering to the law is a good thing.  That is why I am very troubled by the broadcast ownership order now circulating at the Commission and the blog posts filed by senior FCC officials supporting it.

    The very first line of the Chairman’s blog post makes it surprisingly clear that the agency must take a closer look at the law before moving forward on the proposed order. His post describes the FCC’s quadrennial obligation to review the broadcast ownership rules as one to “determine if they need to be modified to serve the public interest.”  That is not the law.

    Section 202(h) of the 1996 Telecommunications Act which imposes the quadrennial review requirement on the FCC was adopted as part of a deregulatory framework. The statute states that the Commission “shall determine whether any [broadcast ownership] rules are necessary in the public interest as the result of competition.” And, it goes on to say that the Commission “shall repeal or modify any regulation it determines to be no longer in the public interest” (emphasis added).

    Given this directive, I find it very hard to understand how one could conclude that reaching back to a docket from 2004 to increase regulation of joint sales agreements (JSAs) without any consideration of the larger picture or change in the marketplace is consistent with the directive of Section 202(h).

    I am even more perplexed and troubled that the apparent basis of the decision to declare television JSAs attributable is a sweeping and inaccurate generalization that JSAs necessarily create de facto ownership and thus violate existing ownership rules.  The blogs do not reference or apparently consider the very significant database of JSAs that resides at the FCC. Instead, they draw conclusions from Securities and Exchange Commission (SEC) filings.  Those filings respond to rules and goals established by the SEC for a very different purpose than FCC licensing. SEC filings are not a part of FCC precedent or law.

    Indeed it is striking that the blogs make no reference to the decades old FCC indicia of control: decision-making authority over programming, personnel and financing. Those indicia led the FCC staff to approve at least 50 JSA arrangements since 2011, making clear in their review that the licensee must control at least 85% of programming and retain at least 70% of net advertising revenue. Also, to pass muster, the terms of the deal must apply at least 20% of station value to the license value.  The FCC is not free to ignore precedent.

    Similarly, as a matter of law, the FCC is not free to simply ignore the record before it. Here, basing a decision on gross generalizations that JSAs are intended to get around ownership rules is wrong.  Adhering to the law in this case requires the agency to take a hard look at the evidence in its own records and consider the presentations made by NAB and others – presentations that demonstrate the varied nature and very real public interest benefits of television JSAs.

    Finally, adhering to the law in this case means taking the directive of Section 202(h) seriously. The Commission must look at the local television ownership rules in light of current competitive conditions. That cannot mean starting another never-ending quadrennial review while tightening restrictions on local broadcast stations alone. 

     
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